Bloomberg News

U.K. Gilts Fall as U.S. Services Data Show Growth; Pound Slips Versus Yen

March 05, 2012

U.K gilts fell, extending last week’s drop, as U.S. data showed growth in non-manufacturing orders in February, renewing speculation the economic recovery is taking hold and damping demand for safer assets.

The pound slid for the first time in five days versus the yen after the British Chambers of Commerce cut its U.K. growth forecast and predicted the Bank of England would refrain from more asset-purchases. The Institute for Supply Management’s index of non-manufacturing industries, which account for almost 90 percent of the U.S. economy, rose to 57.3 from 56.8 a month earlier. The Tempe, Arizona-based group’s measure was projected to fall to 56, according to a Bloomberg News survey.

Gilts have fallen “pretty much in line with other major markets after U.S. economic data was a bit better than expected,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “Stronger U.S. growth reduces downside economic risk and thus the need for exceptionally easy monetary policy although I think tightening is a very long time away still, both in the U.K. and elsewhere.”

The 10-year gilt yield rose four basis points, or 0.04 percentage point, to 2.18 percent at 4:15 p.m. London time after rising seven basis points last week. The 4 percent security due March 2022 fell 0.365, or 3.65 pounds per 1,000-pound face amount, to 116.330. Two-year gilt yields were four basis points higher at 0.43 percent.

Benchmark U.S. Treasury note yields and rose two basis points to 1.99 percent. German 10-year bund rates also gained two basis points, to 1.83 percent.

Sterling depreciated 0.3 percent to 129.13 yen and was 0.1 percent stronger at $1.5856 after earlier falling 0.3 percent to $1.5786, the lowest since Feb. 24. The pound was little changed at 83.37 pence per euro.

QE Target

The London-based business lobby lowered its 2012 growth projection to 0.6 percent from 0.8 percent in December. It pushed back its forecast for an interest-rate rise to the end of 2013 from the first quarter.

The Bank of England’s Monetary Policy Committee will keep its bond-buying target at 325 billion pounds when it meets on March 8, according to all the 45 economists in a Bloomberg News survey.

Demand for the pound was also limited as a U.K. services index fell from an 11-month high in February. The gauge based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply was 53.8 last month, from 56 in January, the highest since March 2011. The median estimate in a Bloomberg News Survey of 29 analysts was 55.

Pound May Slip

The pound may slip to $1.5751 after falling through its 200-day moving average of $1.5893 and Feb. 28 low of $1.5902, Axel Rudolph, a senior technical analyst at Commerzbank AG in London wrote in a note to clients.

The $1.5751 level is the two-month support line, derived from connecting the January and February lows, he said.

Support refers to an area on a chart where analysts anticipate buy orders are clustered. A moving average is the average value of a security over a period of time.

Gilts have handed investors a 0.9 percent loss this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries dropped 0.2 percent and German bunds returned 0.3 percent.

Sterling has weakened 0.6 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar fell 2.8 percent and the euro declined 0.7 percent.

-- Editors: Mark McCord, Nicholas Reynolds

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

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


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