U.K. Yields Drop to Lowest Since November Amid Ukraine TensionsDavid Goodman
U.K. government bonds advanced, with 10-year yields falling to the lowest level since November, as investors sought the safety of British debt amid escalating tensions in Crimea.
Gilts also rallied before more than 35 billion pounds ($58.5 billion) of bonds mature on March 7, according to data compiled by Bloomberg. Gilts have underperformed all euro-area bonds in the past year, according to Bloomberg World Bond Indexes. Gains were tempered as an industry report showed U.K. manufacturing growth accelerated in February. The pound slid against the dollar and yen and rose against the euro.
“There is that relative safe-haven demand,” said Simon Peck, a rates strategist at Royal Bank of Scotland Group Plc in London. “But I would also argue that if there’s one location where you’ve been relatively happy to be short, it has been the U.K., given the improving data backdrop. There’s more room to rally.” A short bet is one that a bond’s price will fall.
The benchmark 10-year gilt yield fell seven basis points, or 0.07 percentage point, to 2.66 percent at 4:42 p.m. London time after dropping to 2.64 percent, the lowest since Nov. 5. The 2.25 percent bond maturing in September 2023 rose 0.53, or 5.30 pounds per 1,000-pound face amount, to 96.62.
Ukraine mobilized its army and called for foreign observers in its southern region after Russia seized control of the Black Sea peninsula. U.S. Secretary of State John Kerry is traveling to Kiev after discussing sanctions against Russia. European Union foreign ministers will hold an emergency meeting.
U.K. gilts dropped 1.1 percent in the year through Feb. 28, according to Bloomberg World Bond Indexes. German bonds were the euro-region’s worst performers, earning 0.6 percent, while those of Greece climbed 57 percent.
The Debt Management Office is scheduled to sell 4.25 billion pounds of gilts due in July 2019 tomorrow. The U.K. last sold five-year debt on Feb. 4 at an average yield of 1.911 percent, compared with 1.994 percent at a previous auction on Dec. 12. The yield on the 1.75 percent bond due in July 2019 fell six basis points today to 1.88 percent.
A purchasing managers’ index for manufacturing climbed to 56.9 last month from a revised 56.6 in January, Markit Economics said. The median estimate of economists in a Bloomberg News survey was for 56.8. A level above 50 indicates expansion. Lenders granted 76,947 home loans in January, the most since November 2007, the Bank of England said today.
The pound has climbed this year even as Bank of England Governor Mark Carney said he’s in no rush to raise interest rates. Policy makers will meet on March 5-6, with all 52 analysts in a Bloomberg News survey forecasting they will keep the Official Bank Rate at a record-low 0.5 percent, where it’s been since March 2009.
The pound slipped 0.5 percent to 169.52 yen. Sterling fell 0.2 percent to $1.6713 after rising to $1.6769 on Feb. 28, the highest since Feb. 17. The U.K. currency strengthened 0.1 percent to 82.34 pence per euro.
Sterling has gained 13 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid optimism an improving economy will persuade the central bank to increase interest rates. The dollar rose 0.2 percent and the euro advanced 6.6 percent.