U.K. Gilts Fall as Stocks Rise, Bank of England Maintains Rates

U.K. government bonds fell, with 10-year yields rising the most in six weeks, as gains in stocks reduced demand for the safety of fixed-income assets and after the Bank of England kept interest rates at a record low.

The pound slid to the weakest in five weeks versus the euro after the European Central Bank refrained from further measures to keep down borrowing costs. Sterling was little changed versus the dollar after an industry report showed house prices rose at a slower pace in the three months through January from a year ago. The Bank of England will publish a new quarterly economic outlook report on Feb. 12 after recent data showed the U.K. economy grew at the fastest pace since 2007 last year.

“We very much believe in the recovery story and remain bearish on gilts,” said Jason Simpson, a U.K. rates strategist at Banco Santander SA in London.

The yield on 10-year gilts rose six basis points, or 0.06 percentage point, to 2.75 percent at 4:46 p.m. London time. That’s the steepest climb since Dec. 27. The 2.25 percent security due September 2023 fell 0.465, or 4.65 pounds per 1,000-pound ($1,634) face amount, to 95.85.

The FTSE 100 Index and the Stoxx Europe 600 Index jumped 1.5 percent.

U.K. gilts returned 2.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.7 percent and German securities gained 2.2 percent.

Economic Growth

Last year’s economic growth pushed the jobless rate to 7.1 percent in the three months through November. That’s just above the 7 percent rate that officials identified as the point where they may consider raising rates. When Carney announced a forward guidance policy in August, unemployment stood at 7.8 percent and was not projected by the BOE to hit the threshold until 2016.

Today’s rates decision by the Bank of England’s Monetary Policy Committee was predicted by all 57 economists surveyed by Bloomberg News.

The pound fell for the third time in four days against the euro after the ECB kept its main interest rate at a record-low 0.25 percent and President Mario Draghi said policy makers would wait until March before deciding whether to cut borrowing costs further.

“We remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required,” Draghi said after the rate decision in Frankfurt. “We firmly reiterate our forward guidance. We continue to expect the key ECB interest rates to remain at present or lower levels.”

Sterling fell 0.3 percent to 83.24 pence per euro after depreciating to 83.50 pence, the weakest since Dec. 31. The pound was at $1.6338 after falling to $1.6252 yesterday, the lowest since Dec. 17.

House Prices

U.K. house prices rose 7.3 percent in the three months through January from a year earlier, compared with a 7.5 percent gain in the three months through December, mortgage lender Halifax, a unit of Lloyds Banking Group Plc, said in an e-mailed statement today.

Sterling strengthened 9.3 percent in the past year, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as U.K. growth spurred bets the central bank would be forced to cut rates sooner than it plans. The euro appreciated 5 percent and the dollar gained 4.3 percent.

“We are bearish on the pound against the dollar,” said Kit Juckes, global strategist at Societe Generale SA in London. “As the MPC pushes back against market expectations of a rate hike, the pound will struggle.”

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