U.K. Gilts Rise a Fourth Day on Ukraine Tensions; Pound DeclinesDavid Goodman
U.K. 10-year bonds advanced for a fourth day as investors sought the safest assets amid simmering tension in Ukraine’s southern Crimea region.
The benchmark British security has climbed with Treasuries and German bunds this week as Crimea prepares for a March 16 referendum on splitting from Ukraine after Russia seized the peninsula. The pound headed for consecutive weekly losses against the dollar and the euro for the first time this year. Reports today showed U.K. construction climbed at a slower pace in January, while the trade deficit widened.
“Treasuries, bunds and gilts lead in this kind of move,” Steven Major, head of global fixed-income research at HSBC Holdings Plc, said in an interview on Bloomberg Television’s “Countdown” with Mark Barton and Anna Edwards. “It’s very difficult to imagine a scenario whereby everyone just kind of kisses and makes up, so on Monday morning it’s not going to be a case of everything’s fine. It’s either going to be very very bad, or very bad.”
The U.K. 10-year yield dropped two basis points, or 0.02 percentage point, to 2.67 percent at 4:18 p.m. London time. The yield has declined 13 basis points this week, the most since the five days through Jan. 10. The 2.25 percent gilt maturing in September 2023 climbed 0.18, or 1.80 pounds per 1,000-pound ($1,662) face amount, to 96.54.
Gilts returned 2.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 2.1 percent and German securities earned 2.6 percent.
U.K. bonds climbed yesterday as U.S. Secretary of State John Kerry told a Senate panel in Washington that America and Europe will take “very serious” steps the day after the referendum in Crimea “if there is no sign” of a resolution to the crisis.
The yield on German 10-year bunds has dropped 11 basis points this week and the rate on similar-maturity U.S. notes has slipped 14 basis points.
The pound was little changed at $1.6619, having declined 0.6 percent since March 7. Sterling depreciated 0.4 percent to 83.74 pence per euro after sliding to 83.81 pence, the weakest level since Dec. 27. It has lost 0.9 percent versus the common currency this week.
Some of the Bank of England’s market contacts see a risk of the pound dropping as a result of the U.K.’s current account deficit, the institution said in its Quarterly Bulletin today. Some contacts told officials “there was a risk of sterling depreciation due to the United Kingdom’s sizable current account deficit,” the bulletin said.
Britain’s trade gap widened to 9.8 billion pounds in January from 7.7 billion pounds in December, the Office for National Statistics said today in London. Economists had forecast a deficit of 8.6 billion pounds, according to the median estimate in a Bloomberg News survey.
The pound has climbed 11 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 7.1 percent, while the dollar weakened 0.7 percent.