Gilts Fall for Third Day as Jobless Claims Drop; Pound Weakens

U.K. government bonds declined for a third day after a government report showed jobless claims dropped by the most in 16 years last month, damping demand for safer assets.

Benchmark 10-year yields climbed to the highest level in three weeks amid speculation U.S. lawmakers will reach an agreement to end a fiscal impasse and avert a government default. Separate U.K. data showed the jobless rate was unchanged at 7.7 percent in the three months through August. The Bank of England has said it will consider raising interest rates once the level has fallen to 7 percent. The pound slipped to a four-week low against the dollar.

“There’s signs that jobs growth is continuing at pace and that’s not quite the story that the BOE is pedaling,” said Jason Simpson, a U.K. rates strategist at Banco Santander SA in London. “The market is looking at these numbers and thinking the unemployment rate could come down. People naturally want to be slightly short gilts,” he said, referring to a bet an asset will decline.

The yield on the 10-year gilt climbed three basis points, or 0.03 percentage point, to 2.84 percent at 4:16 p.m. London time after reaching 2.85 percent, the highest level since Sept. 24. The 2.25 percent bond due in September 2023 fell 0.275, or 2.75 pounds per 1,000-pound ($1,591) face amount, to 94.96.

Claims for unemployment benefit fell by 41,700, the most since June 1997, the Office for National Statistics said. The decline exceeded the 25,000 median forecast in a Bloomberg News survey. U.K. payrolls rose 155,000 to a record 29.9 million in the three months through August, the report showed.

‘Stronger’ Growth

“Things are going the Bank of England’s way, with stronger employment growth not being reflected in a falling ILO unemployment rate,” David Tinsley, an economist at BNP Paribas SA in London, wrote in an e-mailed note to clients.

U.K. gilts handed investors a loss of 3.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries dropped 2.8 percent and German securities declined 2.3 percent.

The pound weakened 0.6 percent to $1.5908 after dropping to $1.5904, the lowest since Sept. 18. It rose as much as 0.4 percent after the jobs data. The U.K. currency depreciated 0.2 percent to 84.72 pence per euro.

“The follow-through in the pound is pretty limited,” said David Simmonds, head of currency and emerging-markets strategy at Royal Bank of Scotland Group Plc. in London. “Markets are absolutely fixated with watching what’s going on in Washington.”

Fiscal Impasse

U.S. House Speaker John Boehner will allow a vote on an emerging Senate agreement to end the U.S. fiscal impasse and the agreement will pass, said Representative Kevin Brady of Texas, a senior House Republican.

Brady said on Bloomberg Television that he thinks House Republicans’ inability to come up with their plan to raise the debt limit before U.S. borrowing authority lapses tomorrow meant that the House would have to accept whatever Senate leaders come up with.

The pound appreciated 3.2 percent in the past three months, the best performer after New Zealand’s dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 0.4 percent, while the U.S. dollar slid 2.2 percent.

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