U.K. Bonds Drop With Germany's After Draghi Rate-Outlook Comment

  • Securities pare back world-beating gains posted in 2016
  • Gilt 10-year yield climbs to highest level in a month

U.K. government bonds declined with German securities after European Central Bank President Mario Draghi said the interest rate cuts announced on Thursday may not be followed by more reductions.

The drop in the benchmark 10-year gilt pushed its yield to the highest level in a month. Gilts are paring a rally that has delivered the biggest returns in the developed world this year, fueled by investors scaling back expectations of a potential increase in the Bank of England’s benchmark rate, which has been at a record-low 0.5 percent since March 2009.

“The gilt yields are being dragged higher by bund and eurozone yields,” said Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London. It was “in response to the ECB press conference, where Draghi basically said we are done.”

The 10-year gilt yield rose six basis points, or 0.06 percentage point, to 1.53 percent as of 4:48 p.m. London time. It earlier climbed to 1.54 percent, the highest since Feb. 8. The 2 percent security due in September 2025 fell 0.505, or 5.05 pounds per 1,000-pound ($1,431) face amount, to 104.175.

The pound weakened 1 percent to 78.16 pence per euro and rose 0.6 percent to $1.4306.

Market Reversal

While the series of easing measures announced by the ECB initially spurred gains in bunds and stocks, markets reversed after Draghi’s remarks to the media.

“He has definitely over-delivered,” said Ostwald. “But then the next thing he said is we are probably done, and that is the last thing financial markets, particularly in the current mood, want to hear.”

The Stoxx Europe 600 Index of shares fell 1.7 percent, after rising earlier as much as 2.5 percent.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE