Index-Linked Gilts Rise as Gap Between Inflation Gauges Widens

U.K. inflation-linked gilts advanced as a report showed the nation’s retail-price index was the highest relative to the consumer-price measure since 2011, increasing the appeal of the securities over conventional bonds.

Retail-price inflation, the measure used as a basis for payments on inflation-linked bonds, slowed to 2.7 percent from 2.8 percent, the Office for National Statistics said today in London. Consumer prices rose an annual 1.7 percent, the least since October 2009, leaving the difference between the two measures at 1 percentage point, the most since March 2011, according to data compiled by Bloomberg.

“The wedge between annual rates of RPI and CPI inflation widened again slightly this month,” Sam Hill, a senior U.K. economist at Royal Bank of Canada in London, wrote in an client note. “The RPI data provides an upside surprise to expectations for linker carry,” he said in an e-mailed response to questions, referring to bets that inflation-linked bonds will outperform their nominal peers.

The yield on 10-year inflation-linked gilts slipped two basis points, or 0.02 percentage point, to minus 0.22 percent at 12:08 p.m. London time. The 0.125 percent security due in March 2024 rose 0.23, or 2.30 pounds per 1,000-pound ($1,650) face amount, to 103.495. The five-year index-linked yield slipped five basis points to minus 0.96 percent.

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