U.K. government bonds snapped a two-day gain as U.S. Treasuries declined after Japan’s Nikkei newspaper reported former U.S. Treasury Secretary Lawrence Summers is likely to be named the next Federal Reserve chairman.
The pound headed for a second weekly advance versus the dollar after a government report showed U.K. construction output accelerated in July, adding to signs the economy is expanding. A Bloomberg Global Poll shows investors, analysts and traders predict Summers to keep Fed policy tighter than Janet Yellen, his main rival. Gilts headed for an eighth week of losses as investors bet policy makers will raise interest rates sooner than they have projected.
“The market’s perception about Summers is that he would want to see normalization of monetary policy sooner rather than later,” said Nicholas Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The report that he might be the next Fed chairman therefore is putting Treasuries under pressure, and that effect is feeding through to other bond markets including gilts. Further positive U.K. data will add to that pressure.”
The yield on the benchmark 10-year gilt was little changed at 2.95 percent at 12:04 p.m. London time, having increased one basis point, or 0.01 percentage point, this week. The price of the 2.25 percent bond due in September 2023 was at 94.
Thirty-five percent of investors, analysts and traders who are Bloomberg subscribers say Summers may provide less stimulus than Ben S. Bernanke, whose chairmanship ends in January, compared with 13 percent who see Summers with looser policy and 22 percent saying it’d be the same. Forty-seven percent see Yellen presiding over the same policy, with 17 percent saying it’d be looser and 8 percent saying tighter.
The Bank of England will boost its benchmark rate from 0.5 percent in the first half of 2015, according to a separate Bloomberg Global Poll. More than two thirds predict an increase between now and the end of that year. Central bank governor Mark Carney has said officials can wait until the end of 2016 before raising borrowing costs.
Gilts handed investors a loss of 4.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 3.8 percent and German bunds slid 2.7 percent.
The pound appreciated 0.1 percent to 84.06 pence per euro after advancing to 83.83 pence on Sept. 11, the strongest since Jan. 23. Sterling was little changed at $1.5807 after rising to $1.5840 yesterday, the highest since Feb. 8.
The U.K. currency has risen 7.2 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.5 percent and the euro advanced 3.4 percent.
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