Bloomberg News

Gilts Fall as House-Price Gauge Climbs to 19-Month High

March 13, 2012

U.K gilts fell as a house-price index climbed to a 19-month high in February and stocks rose across Europe, sapping demand for the relative safety of fixed- income assets.

The declines pushed the 10-year yield up by the most since Feb. 29. The pound rose to a one-week high against the euro and snapped a two-day drop versus the dollar after the Royal Institution of Chartered Surveyors home-price gauge increased 3 points from January to minus 13, the strongest since July 2010.

“Gilts are moving in sympathy with the other markets,” said Sam Hill, a fixed-income strategist at Royal Bank of Canada’s RBC Capital Markets unit in London. With stocks rising in the U.K. and Europe, “it’s no surprise to see gilt yields slightly higher,” he said.

The yield on the 10-year bond rose seven basis points, or 0.07 percentage point, to 2.17 percent at 4:17 p.m. London time, after slipping six basis points yesterday to the lowest since Feb. 28. The 4 percent note due March 2022 fell 0.72, or 7.20 pounds per 1,000-pound ($1,572) face amount, to 116.37.

Britain’s benchmark stock index, the FTSE 100, rose 1 percent while the Stoxx Europe 600 Index gained 1.7 percent.

Bunds, Treasuries

Gilts slid with German bunds and Treasuries after reports showed confidence in Europe’s largest economy improved more than analysts forecast and retail sales in the U.S. jumped in February by the most in five months. Demand for safety also waned as euro-area finance ministers endorsed a second Greek bailout. The German 10-year bond yield increased six basis points to 1.82 percent and the rate on similar-maturity U.S. securities climbed four basis points to 2.08 percent.

U.K. bonds have lost 0.5 percent this year as signs that Europe is making progress in solving the debt crisis reduced demand for safety, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds made 0.4 percent, while Treasuries handed investors a 0.6 percent loss, the indexes show.

The FTSE-100 Index has climbed 6.7 percent this year.

Sterling gained 1 percent to 83.30 pence per euro. The pound rose 0.6 percent to $1.57366. It fell to as little as $1.5603 yesterday, the weakest level since Jan. 25.

The pound may decline toward $1.5530 after falling below its 55-day moving average and reaching its lowest level this month, according to Michael Hewson, a markets analyst at CMC Markets in London.

“The key barrier on the upside remains at the 200-day moving average,” which is “a key resistance level for another crack at the $1.60 area,” he wrote in a client note e-mailed today. Resistance refers to an area where sell orders may be clustered.

The pound’s 200-day moving average against its U.S. peer is at $1.5873, according to data compiled by Bloomberg. The 55-day moving average was at $1.5685.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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