Gilts fell for the first time in three days as signs the European sovereign debt crisis is easing damped demand for the relative safety of U.K. government debt.
Gilts declined along with German bunds after Spain raised more than its maximum target at a bill sale and a German report showed investor confidence unexpectedly increased in April. U.K. bonds also dropped and the pound strengthened against most of its 16 major peers after a report showed inflation accelerated, fueling speculation the Bank of England will refrain from further asset purchases, or quantitative easing.
“Gilts sold off initially because of bunds selling off,” said Anthony O’Brien, a fixed-income strategist at Morgan Stanley in London. The inflation data “casts a bit of doubt on whether they’re going to go for QE in May.”
The yield on the 10-year gilt climbed seven basis points, or 0.07 percentage point, to 2.10 percent at 4:33 p.m. London time after dropping five basis points over the past two days. The 4 percent bond due March 2022 fell 0.675, or 5.75 pounds per 1,000-pound ($1,596) face amount, to 116.885.
Spain’s 10-year bond yields declined 18 basis points to 5.89 percent after the nation sold 3.18 billion euros ($4.18 billion) of bills, surpassing the Treasury’s maximum target of 3 billion euros. The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations increased to a two-year high of 23.4 in April.
U.K. consumer prices climbed 3.5 percent from a year earlier, after rising 3.4 percent in February, the Office for National Statistics said in London. The reading was higher than the 3.4 percent median estimate of economists surveyed by Bloomberg, and above the central bank’s target of 2 percent.
The pound appreciated 0.2 percent to $1.5938, and climbed 0.6 percent to 128.66 yen. Sterling gained 0.3 percent to 82.44 pence per euro after reaching 82.10 pence yesterday, the strongest level since September 2010.
“Inflation has been very sticky,” David Bloom, global head of currency strategy at HSBC Holdings Plc in London, said before the data was released. “If you get the knee-jerk spike up in sterling because the inflation numbers are higher, I’d sell into it.” He spoke in an interview on Bloomberg Television’s “On The Move” with Mark Barton.
Sterling has gained 0.6 percent in the past month, the second-best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the yen, which gained 3.6 percent. The euro dropped 0.3 percent.
Gilts have handed investors a loss of 0.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. That’s the fourth worst performance among 26 sovereign markets tracked by the indexes.
The 10-year gilt yield will meet resistance should it decline to its 50-day moving average 1.86 percent, according to data compiled by Bloomberg. Resistance refers to an area on yield charts where sell orders may be grouped.
The Debt Management Office is scheduled to auction 1.35 billion pounds of inflation-linked bonds due in March 2029 on April 19. The office will sell 28-, 91- and 182-day bills on the following day.
-- With assistance from TJ Marta in New York. Editors: Nicholas Reynolds, Paul Dobson
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