Gilts Extend Weekly Advance on Bets U.S. Will Maintain Stimulus

U.K. government bonds extended a third week of gains as a U.S. report showing consumer confidence dropped this month boosted demand for fixed-income assets.

Benchmark 10-year gilt yields dropped toward the lowest level in two months as the data added to speculation the Federal Reserve will maintain asset purchases to keep borrowing costs low. U.K. bonds have advanced for three of the past four days after a U.S. report this week showed American employers added fewer jobs last month than economists forecast. The pound weakened against the euro and the dollar.

“We’re going where Treasuries lead us,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “The situation in the U.S. remains the biggest driver of longer-term yields and sentiment. The data in the U.K. has settled down a bit.”

The benchmark 10-year gilt yield dropped two basis points, or 0.02 percentage point, to 2.62 percent at 4:52 p.m. London time, having declined 10 basis points this week. The 2.25 percent bond due in September 2023 rose 0.135, or 1.35 pounds per 1,000-pound face amount, to 96.855.

The Thomson Reuters/University of Michigan Index of U.S. consumer sentiment index fell to 73.2, the weakest this year, from 77.5 in September. The median estimate in a Bloomberg survey was for a decline to 75.

Fed Purchases

U.S. employers added 148,000 workers in September, the Labor Department said on Oct. 22. Economists surveyed by Bloomberg forecast an increase of 180,000. Fed policy makers will maintain their bond purchases at $85 billion a month until March, according to a separate Bloomberg survey.

Gilts lost 2.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 1.9 percent and German securities dropped 1.5 percent.

The pound declined 0.2 percent to 85.32 pence per euro after depreciating to 85.55 pence yesterday, the weakest level since Aug. 29. Sterling dropped 0.2 percent to $1.6166.

The U.K. currency strengthened in earlier trading after the Office for National Statistics said gross domestic product increased 0.8 percent in the third quarter, after expanding 0.7 percent in the previous three months.

Citigroup Inc. has used options in its trade ideas portfolio to bet the pound will appreciate against the dollar, Josh O’Byrne, a currency strategist in London, wrote in a research note.

“Further strengthening in the domestic recovery could push investors to more significantly buy into the pound story,” he wrote. “Citi economists expect GDP to hit 3 percent next year, pushing unemployment lower more quickly.”

The pound strengthened 3 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.8 percent, while the dollar fell 2.4 percent.

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