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Gilts Rise on Spain Jobless Data as Pound Heads for Weekly Gain

October 26, 2012

U.K. government bonds advanced after data showed Spanish unemployment climbed to a record, with one in every four workers out of a job in the third quarter, boosting demand for the safest assets.

The extra yield investors demand to hold 10-year gilts instead of similar-maturity German bunds widened to the most in four months on speculation the Bank of England will refrain from expanding bond-purchase stimulus after U.K. growth data yesterday beat economist forecasts. The pound gained versus all of but two its 16 major counterparts in the week.

“The bigger picture for gilts is that the euro-region crisis is ongoing,” said Simon Peck, a London-based interest- rate strategist at Royal Bank of Scotland Group Plc. “We’ve seen a rally in core fixed-income, with gilt yields going lower. At the moment on the domestic side there’s a shifting momentum away from bond purchases and that’s causing gilts to underperform bunds.”

The yield on the 10-year gilt fell five basis points, or 0.05 percentage point, to 1.87 percent at 4:49 p.m. London time. The 1.75 percent security maturing in September 2022 rose 0.44, or 4.40 pounds per 1,000-pound ($1,612) face amount, to 98.97. Ten-year gilt yields were two basis points lower over the week.

Spain’s unemployment rose to 25.02 percent from 24.6 percent in the previous quarter, a report showed today. That is the highest since at least 1976, the year after dictator Francisco Franco’s death led Spain to democracy.

Yield Spread

The yield difference, or spread, between 10-year gilts and the rate on similar-maturity German bunds was little changed at 33 basis points, the widest since June, according to closing- price data compiled by Bloomberg.

U.K. gross domestic product expanded 1 percent in the three months through September from the previous period, the fastest growth since 2007, the Office for National Statistics said yesterday. That exceeded the highest estimate in a Bloomberg News survey for a 0.8 percent increase.

The pound was little changed at $1.6098, having gained 0.6 percent since Oct. 19, the first weekly advance since the five days ended Sept. 21. Sterling slid 0.1 percent to 80.34 pence per euro after touching 80.02 pence, the strongest since Oct. 3.

“The GDP data helped my view that the Bank of England won’t ease again in November,” said Steven Barrow, head of Group of 10 research at Standard Bank Plc in London. “What happens to the U.K. economy won’t be as bad as the euro-region economy and the pound will continue to strengthen against the euro.”

Sterling will probably appreciate to 75 pence per euro within six months, Barrow said. The currency last traded at 75 pence in February 2008.

The pound has risen 0.2 percent in the past three months according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro gained 3.1 percent and the dollar dropped 2.6 percent.

Gilts have returned 1.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 2.5 percent and Treasuries earned 1.4 percent.

To contact the reporter on this story: Emma Charlton in London at

To contact the editor responsible for this story: Paul Dobson at

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