U.K. Gilts Fall as Syria Tension Eases, House-Price Gauge JumpsNeal Armstrong and Anchalee Worrachate
U.K. government bonds fell, pushing 10-year yields to the highest level since July 2011, as the threat of a U.S. led attack on Syria receded and data showed China’s economy is improving.
Ten-year gilts declined for a second day after a U.K. house-price gauge climbed to the most in almost seven years, damping demand for safer assets. Russia’s Interfax news agency cited Syrian Foreign Minister Walid al-Muallem as saying his government accepted a proposal to put its chemical weapons under international control. Thirty-year gilt yields climbed to the highest in two years after borrowing costs increased at a sale of the securities. The pound strengthened against the dollar.
“The risk of an imminent strike against Syria has eased and that’s pushing bond yields in developed markets higher,” said Jussi Hiljanen, head of fixed-income research at SEB AB in Stockholm. “Signs of China’s economic rebound also contributed to the rise in yields, which in our view look a bit stretched.”
The benchmark 10-year gilt yield jumped seven basis points, or 0.07 percentage point, to 3.03 percent at 4:08 p.m. London time, after reaching 3.05 percent, the highest since July 27, 2011. The 2.25 percent bond due in September 2023 fell 0.575, or 5.75 pounds per 1,000-pound ($1,572) face amount, to 93.365.
Thirty-year yields rose five basis points to 3.74 percent after reaching 3.76 percent, the most since September 2011.
France said it will submit a Russian-backed plan to confiscate Syria’s chemical weapons to the United Nations and the U.K.’s William Hague said the “onus is on Russia and Syria to show that this is credible.”
An index of U.K. house prices increased to 40 in August, the highest level since November 2006, from a revised 37 in July, the Royal Institution of Chartered Surveyors said in London. China’s industrial production rose 10.4 percent in August from a year earlier and retail sales gained 13.4 percent.
The additional yield, or spread, investors demand to hold 10-year gilts instead of their U.S. equivalents was at seven basis points today, the most since February.
Gilts lost 4.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries declined 3.9 percent and German bunds dropped 2.7 percent.
The pound rose 0.2 percent to $1.5721 after climbing to $1.5733 yesterday, the highest level since June 17. Sterling advanced 0.1 percent to 84.37 pence per euro after appreciating to 83.92 pence on Sept. 6, the strongest since Jan. 24.
A report tomorrow will show jobless claims fell last month, according to a Bloomberg News survey of economists. Unemployment held at 7.8 percent in July, according to a separate Bloomberg survey, above the Bank of England’s 7 percent threshold for assessing interest rates.
The Debt Management Office sold 2.75 billion pounds of bonds maturing in January 2044 at an average yield of 3.743 percent, compared to 3.553 percent at the previous sale of the securities on July 11.
The U.K. is scheduled to auction 3.75 billion pounds of 10-year gilts on Thursday.