Gilts Rise for 3rd Day on Low-Rate Pledge, Bid for Safety

U.K. 10-year gilt yields dropped to the least in 12 weeks as a selloff in emerging-market assets boosted demand for haven securities and after Bank of England Governor Mark Carney this week pledged to keep rates low.

The pound weakened for a fourth day against the dollar, headed for its first monthly decline since October, even as a report today showed a gauge of U.K. consumer confidence climbed to the highest level in more than six years in January. Carney said on Jan. 29 that the central bank still wasn’t ready to raise interest rates from a record-low 0.5 percent. The Bank of England will publish new economic forecasts in its quarterly Inflation Report on Feb. 12.

“We’re caught in the crosswinds of what’s going on in emerging markets, which has seen short covering in gilts, and what’s going to happen with forward guidance,” said Anthony O’Brien, a fixed-income strategist at Morgan Stanley in London. Short covering is when investors end bets an asset will decline.

The 10-year gilt yield fell four basis points, or 0.04 percentage point, to 2.71 percent at 4:24 p.m. in London after sliding to 2.69 percent, the lowest since Nov. 8. The 2.25 percent bond maturing in September 2023 climbed 0.37, or 3.70 pounds per 1,000-pound ($1,645) face amount, to 96.165.

Anti-government protests in Thailand and Ukraine, coupled with Argentina’s devaluation of the peso and a slump in developing-nation currencies from Turkey and South Africa to Russia and Hungary have ignited concern over emerging markets in the past week. An index of 20 of the nations’ currencies compiled by Bloomberg dropped 2.9 percent this year.

Bond Returns

U.K. gilts returned 1.8 percent this year through yesterday, according to Bloomberg World Bond Indexes, headed for their biggest monthly increase since July 2012. Treasuries earned 1.6 percent and German securities gained 1.7 percent.

Carney unveiled forward guidance on Aug. 7, pledging not to raise the benchmark interest rate until unemployment falls to 7 percent. The jobless rate fell to 7.1 percent in the three months through November, according to data released Jan. 21, prompting him to pledge that policy makers will consider ways to update their guidance in a speech three days later.

An index of consumer sentiment rose to minus 7 from minus 13 in December, GfK NOP Ltd. said. That’s the highest since September 2007 and above the median forecast of minus 12 in a Bloomberg survey of analysts.

The pound fell 0.2 percent to $1.6450, having dropped 0.7 percent in January. Sterling gained 0.2 percent to 82.07 pence per euro after appreciating to 81.68 pence on Jan. 22, the strongest level since Jan. 10, 2013. It has risen 1.2 percent versus the common currency this month.

Sterling gained 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5 percent and the dollar strengthened 5.7 percent.

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