Bloomberg News

Gilts Advance Amid Safety Bid as U.K. Construction Output Slows

February 02, 2012

Feb. 2 (Bloomberg) -- U.K. government bonds advanced, pushing 10-year yields down from the highest in almost a week, as investors sought the safest assets after U.K. construction output slowed to the weakest in four months in January.

Shorter-dated securities led gains as Britain auctioned 1.25 billion pounds ($1.98 billion) of inflation-linked debt due March 2029. Gilts also rose as Italian and Spanish debt declined for the first time in three days. The pound traded within 0.4 percent of a 10-week high against the dollar.

‘The weaker figure today might have had a little bit of an impact’’ on gilts, said Elisabeth Afseth, a fixed-income analyst at Investec Capital Markets in London, referring to the building data. “There seems to be a little bit of a widening in the peripherals, after a very strong performance over the past couple of days. The U.K. is benefiting from that.”

Two-year note yields fell as much as three basis points to 0.37 percent and were at 0.39 percent at 11:03 a.m. London time. The 2.25 percent security due March 2014 rose 0.025, or 25 pence per 1,000 pound face amount to 103.88. Benchmark 10-year bond yields slipped to 2.04 percent, after reaching 2.06 percent, the highest since Jan. 27.

The gauge of building activity based on a survey of purchasing managers fell to 51.4 last month from 53.2 in December, Markit and the Chartered Institute of Purchasing and Supply in London said in a report. The median forecast of nine economists in a Bloomberg News survey was 52.5. A reading above 50 indicates expansion.

Gilt Returns

Gilts handed investors a loss of 0.2 percent so far this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian government bonds have returned 7.4 percent, while Spanish debt has gained 3 percent.

The U.K. Treasury sold the 0.125 percent inflation-linked debt maturing in 2029 at an average yield of minus 0.188 percent. The auction attracted bids of 2.27 times the securities offered.

The pound traded at $1.5825, after yesterday climbing to as high as $1.5883, the strongest level since Nov. 18. It was also little changed at 83.07 pence per euro.

Sterling has dropped 0.7 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar declined 2.6 percent and the euro fell 1.1 percent.

--Editors: Paul Dobson, Nicholas Reynolds

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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