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UK Bonds Advance as German Confidence Rises Less Than Forecast - (Bloomberg)

Posted by Chris Advincula on Sep 24, 2013 7:32:00 AM

U.K. government bonds advanced for a second day after a report showed the Ifo institute’s index of German business confidence rose less than economists forecast this month, boosting demand for the safest fixed-income assets.

Gilts climbed with German bunds and U.S. Treasuries as investors weighed comments from Federal Reserve officials on whether they will maintain the pace of their debt purchases. Bank of England policy maker Ben Broadbent said yesterday it was right to link the U.K. central bank’s guidance on future interest rates to unemployment. Britain is selling inflation-linked bonds maturing in 2068 via banks today. The pound slipped versus the dollar.

“The Ifo survey was slightly disappointing,”said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “Investors are also unclear about the Fed’s intentions, weighing on risk appetite. Gilts are being largely driven by movements in Treasuries near-term.”

The yield on the benchmark 10-year gilt fell four basis points, or 0.04 percentage point, to 2.87 percent at 9:49 a.m. London time, after climbing to 3.05 percent on Sept. 11, the highest level since July 2011. The 2.25 percent bond due in September 2023 advanced 0.33, or 3.30 pounds per 1,000-pound ($1,598) face amount, to 94.66.

The rate on similar-maturity U.S. notes slipped one basis point to 2.69 percent, after dropping five basis points in the previous two trading days.

Jobless Rate

Bank of England’s Broadbent said a faster decline in the jobless rate than policy makers expect would warrant a rethink on the scale of stimulus needed for the economy. There are also risks from “headwinds” to growth, he said.

It’s “appropriate to consider withdrawing some of the monetary easing in place if we see a marked decline in the single most reliable -- albeit lagged -- measure of spare capacity, namely the rate of unemployment,” Broadbent said in London. “If unemployment declines more slowly it would be right to leave the monetary stance unchanged for that much longer.”

BOE Governor Mark Carney introduced guidance last month, saying policy makers won’t consider raising the key interest rate from a record low of 0.5 percent at least until unemployment falls to 7 percent, something they don’t see happening until late 2016.

The Ifo institute’s German business climate index, based on a survey of 7,000 executives, climbed to 107.7 from a revised 107.6 in August. That compares with a median forecast of 108 in a Bloomberg News survey of 43 analysts.

Pound Slips

Fed Bank of New York President William C. Dudley said yesterday the economy still needs support from the central bank. The Fed last week maintained its policy of buying $85 billion of debt a month to put downward pressure on borrowing costs, causing investors to push back forecasts for when the central bank would raise its benchmark interest rate.

The pound slipped 0.4 percent to $1.5981 after climbing to $1.6163 on Sept. 18, the highest since Jan. 11. The U.K. currency weakened 0.4 percent to 84.42 pence per euro after appreciating to 83.53 pence on Sept. 18, the strongest level since Jan. 17.

Sterling has risen 5.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 0.2 percent, while the euro gained 4.3 percent.

U.K. gilts lost 4.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities dropped 2.2 percent and Treasuries fell 2.8 percent. 



ukgilts.9.24.2013 resized 600 

bunds.9.24 resized 600

Source: Bloomberg 


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Source: Bloomberg



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Chart: WorldWideMarkets Flash Trader


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