U.K. Bonds Rise Amid Zero Inflation as Pound Falls Versus Dollar

U.K. government bonds rose, pushing 10-year yields down from the highest level in almost a month, as a report showed annual consumer prices were stagnant for a second month in March.

Ten-year gilts rebounded from their decline on Monday, when a measure of the inflation outlook known as the break-even rate reached the highest in more than three months. That was driven by speculation the pace of consumer-price growth will eventually accelerate amid a rally in oil and an improving U.K. economy.

Benchmark 10-year yields fell three basis points, or 0.03 percentage point, to 1.57 percent at 10 a.m. London time, having touched 1.64 percent on Monday, the highest since March 18. The 5 percent gilt due in March 2025 rose 0.26, or 2.60 pounds per 1,000-pound ($1,461) face amount, to 131.34.

The inflation rate remained at zero, the Office for National Statistics in London said Tuesday. That was in line with the median estimate from economists in a Bloomberg survey.

The pound fell 0.4 percent to $1.4617 and was 0.3 percent weaker at 72.24 pence per euro.

Weak U.K. price growth means there’s little pressure on the Bank of England to raise its key interest rate from a record-low 0.5 percent. The dollar has been supported as Federal Reserve officials debate the timing of their first rate increase since 2006.

The five-year break-even rate, a measure of the outlook for inflation derived from the yield difference between gilts and index-linked securities, climbed on Monday to the highest level in more than three months.

The rate fell three basis points on Tuesday to 2.46 percentage point on Tuesday, having reached 2.51 percentage points on Monday, the most since Jan. 2.

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