Bloomberg News

Gilts Fall Most in 2 Months as U.S. Adds More Jobs Than Forecast

February 05, 2012

Feb. 3 (Bloomberg) -- U.K. 10-year gilts fell the most in two months after a U.S. report showed employers added more jobs than economists forecast, damping demand for the relative safety of Britain’s government debt.

Gilts extended a weekly decline as the data boosted speculation the recovery in the world’s largest economy is gaining momentum. U.K. government securities fell earlier after a gauge of U.K. services activity, known as the purchasing managers’ index, climbed to a 10-month high in January. The pound headed for a third weekly gain versus the dollar. The Treasury sold 3.5 billion pounds ($5.52 billion) of bills.

“The first leg higher in gilt yields came after this morning’s PMI services numbers,” said Vatsala Datta, an interest-rate strategist at Lloyds Bank Corporate Markets in London. “The stronger-than-expected nonfarm payrolls data gave gilt yields a second leg higher.”

The U.K. 10-year yield rose nine basis points, or 0.09 percentage point, to 2.18 percent at 4:01 p.m. London time, after climbing as much as 11 basis points, the most since Dec. 1. The 3.75 percent bond due September 2021 dropped 0.84, or 8.40 pounds per 1,000-pound face amount, to 113.5. The yield increased 12 basis points this week.

U.S. employers added 243,000 workers last month after hiring 203,000 in December, the Labor Department said today in Washington. A Bloomberg News survey of economists forecast a reading of 140,000. The jobless rate fell to 8.3 percent, the lowest in three years.

Services Expand

An index of U.K. services rose to 56 in January, the highest since March, from 54 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said today in an e-mailed report.

The pound was little changed at $1.5802, having gained 0.5 percent this week. Sterling strengthened 0.2 percent to 83.01 pence per euro.

The U.K. currency has weakened 0.9 percent this year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar declined 2.7 percent, and the euro slid 1.4 percent.

Gilts have handed investors a loss of 0.7 percent in 2012, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German government bonds fell 0.1 percent.

The U.K. sold 28-, 92-, and 182-day bills today. Investors bid for 2.51 times the amount of 92-day securities on offer, compared with a bid-to-cover ratio of 2.52 in a sale of 91-day securities on Jan. 27. Demand for the 182-day bills rose to 3.49 times, from a bid-to-cover ratio of 2.76 on Jan. 27. The average yield of both securities increased from their previous sales.

--Editors: Nicholas Reynolds, Paul Dobson

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; 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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