U.K. Bonds Decline as Yields Reach Highest Since Brexit Vote

  • Gilts fall for eighth day, longest losing streak since 2012
  • Money markets pricing 50% chance of interest-rate hike in May

A businessman exits Bank underground railway station in the City of London.

Photographer: Jason Alden/Bloomberg

U.K. 10-year bond yields climbed to the highest level since the nation voted to leave the European Union amid a broad selloff in global sovereign debt and growing expectations that the Bank of England will raise interest rates sooner than expected.

Benchmark 10-year gilts dropped for an eighth day, set for their longest losing streak since 2012. Money markets are pricing in a 50 percent chance of a rate increase by the BOE in May, compared with 39 percent a month ago. Policy makers are scheduled to announce their first decision of the year on Feb. 8.

“Central banks talking about the withdrawal of policy accommodation has got the U.K. markets a little nervous ahead of the BOE meeting,” Jason Simpson, a strategist at Societe Generale SA, said in emailed comments. Governor Mark Carney may choose to give a “more hawkish message,” he said.

Ten-year gilt yields climbed five basis points to 1.58 percent as of 9:29 a.m. London time, after touching 1.59 percent, their highest level since May 2016. The yield has surged about 40 basis points this year.

Global sovereign bonds have slumped this year as the world’s major central banks extract themselves from years of extraordinary monetary stimulus. Treasury 10-year yields are close to their highest in almost four years, while those on Germany’s benchmark bunds have almost doubled. Andy Chaytor, a strategist at Nomura International Plc, sees 10-year gilt yields climbing to 2.10 percent by the end of June, a level not seen since 2015.

“On a global level we are moving into a synchronized hiking cycle,” said Chaytor, who sees an agreement on a Brexit transition deal and more hawkish noises from the BOE contributing to a further selloff in U.K. securities. Gilt investors should “stay short,” he said.

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