U.K. Gilts Fall Amid Central Bank Rates Speculation

U.K. government bonds fluctuated, with 10-year yields falling from the highest in a week, as minutes from central banks yesterday stoked speculation that interest rates may rise faster than economists forecast.

Benchmark 10-year gilts earlier extended their decline from yesterday, when the Bank of England said two policy makers voted to raise U.K. borrowing costs from a record-low 0.5 percent at their Aug. 6-7 meeting. Federal Reserve minutes released later yesterday showed U.S. policy makers raised the possibility of boosting rates sooner than they had anticipated. The U.K. today sold 3.25 billion pounds ($5.39 billion) of gilts due in September 2024.

The minutes “both highlight how uncertain the outlook is,” said Jamie Searle, a U.K. rates strategist at Citigroup Inc. in London. “For the U.K., it feels like they could hike at any time. They have adopted a wait-and-see approach, but this could quickly change.”

The 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.40 percent at 4:06 p.m. London time, after increasing to 2.46 percent, the highest since Aug. 13. The 2.25 percent bond due in September 2023 rose 0.130, or 1.30 pounds per 1,000-pound face amount, to 98.775.

Treasury Yields

U.S. Treasury 10-year yields rose to as much as 2.45 percent today, the most since Aug. 13, after the release of the Fed’s July minutes. The Federal Open Market Committee last month debated how much slack remains in labor markets, and came closer to an agreement on how to exit from the most aggressive stimulus in the Fed’s 100-year history, the minutes show.

Bank of England policy makers Martin Weale and Ian McCafferty said at the Monetary Policy Committee’s August meeting that “economic circumstances were sufficient to justify an immediate rise in bank rate.”

Gilts returned 6.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries earned 3.9 percent and German securities gained 6.8 percent.

The pound was little changed at $1.6600 after dropping to $1.6564, the lowest since April 4. The U.K. currency weakened 0.2 percent to 80.06 pence per euro.

Sterling gained 6.4 percent in the past year, boosted by speculation that the central bank was moving toward raising rates, making it the best performer after New Zealand’s dollar of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It has weakened 1.6 percent in the past month.

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