Bloomberg News

U.K. 10-Year Gilts Advance as Retail Sales Unexpectedly Stagnate

December 20, 2012

U.K. 10-year government bonds advanced, snapping a nine-day decline, as a report showed retail sales unexpectedly stagnated in November, signaling that the economic recovery will be uneven.

Gains today pushed yields down from the highest level since May. The U.K. securities rose with Treasuries as U.S. leaders struggle to reach an agreement to avert more than $600 billion in spending cuts and tax increases due to start next month, threatening to send the world’s largest economy into recession. Sterling was 0.3 percent from a six-month low against the euro.

“The recovery is going to be a long and drawn-out process,” said Jason Simpson, an interest-rates strategist at Banco Santander SA in London. “A lot of it is offshore driven, with what’s happening with Treasuries and the bigger picture is playing a role. The bigger moves have been engineered by what’s going on globally, with risk appetite.”

Ten-year gilt yields declined one basis point, or 0.01 percentage point, to 1.94 percent at 11:40 a.m. London time. The 1.75 percent bond due in September 2022 advanced 0.13, or 1.30 pounds per 1,000-pound ($1,626) face amount, to 98.31. Yields rose to 1.99 percent yesterday, the highest since May 10.

Rates on 10-year gilts may climb to 2.90 percent in the next 12 months, Simpson said.

Sales including fuel were unchanged last month, after sliding 0.7 percent in October, the Office for National Statistics said in London today. The median prediction of 22 economists in a Bloomberg survey was for a 0.4 percent gain.

Consumer Confidence

U.K.consumer confidence slipped to minus 25, from minus 22 in November, London-based research group GfK NOP Ltd. will say tomorrow, according to the median estimate of 21 economists in a Bloomberg survey.

Gilts returned 1.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 3.7 percent and Treasuries earned 1.8 percent.

The U.K. currency was little changed at 81.49 pence per euro, after depreciating yesterday to 81.68 pence, its weakest level since June 11. The pound gained 0.2 percent to $1.6276, after rising to $1.6307 yesterday, the highest since Sept. 21.

Bank of England policy makers voted 8-1 to pause their asset-buying program at 375 billion pounds as risks from the euro-area crisis ease and inflation concerns persist, the minutes of their Dec. 5-6 meeting released yesterday showed.

The pound has gained 1.6 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 1 percent and the dollar fell 3.5 percent.

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

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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