U.K. Bonds Post Weekly Drop as Carney Reiterates Stance on Rates

U.K. government bonds posted their first weekly decline since March 6 after Bank of England Governor Mark Carney reiterated that the next move in interest rates is likely to be up.

Investors had pushed back bets on higher U.K. borrowing costs amid signs the economic recovery is losing momentum and after officials emphasized the disinflationary impact of a stronger pound. U.K. bonds also tracked declines by Treasuries as demand shriveled at two U.S. note auctions to the least in five years.

“There might be some negative bias in the market from the BOE comments,” said Jason Simpson, a fixed-income strategist at Societe Generale SA in London. “The market is struggling,” and “a lot of it is following Treasuries.”

Ten-year gilt yields climbed three basis points, or 0.03 percentage point, to 1.54 percent last week. The 5 percent bond due in March 2025 was at 131.745.

The pound weakened 0.4 percent in the week to $1.4894, even after a rally on Friday. It tumbled 1.3 percent to 73.32 pence per euro, its second straight weekly decline.

Beating Treasuries

Gilts have outperformed Treasuries and euro-area bonds over the past month as data came in weaker than economists forecast. That helped damp speculation of an increase to the BOE’s 0.5 percent benchmark rate.

Britain’s economy expanded 0.5 percent in the fourth quarter, down from 0.7 percent growth in the three months through September, the Office for National Statistics will say on Tuesday, confirming an initial estimate from February, according to a Bloomberg survey of economists. Reports on consumer confidence and manufacturing output are also due in the coming week.

U.K. debt returned 1.2 percent in the month through Thursday, according to Bloomberg World Bond Indexes. Treasuries made 0.5 percent and euro-region bonds earned an average 0.9 percent. The U.S. 10-year yield rose three basis points since March 20, after falling 31 basis points during the previous two weeks.

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