U.K. government bonds fell for the first time in three days after a purchasing managers index of service industries rose in September, adding to signs of strength in the economy and sapping demand for safer assets.
Benchmark 10-year yields climbed the most in two weeks as the Debt Management Office sold 4 billion pound ($6.48 billion) of the securities at an auction today. House prices increased for an eighth month in September as government assistance programs boosted demand, according to a report from Halifax. The pound weakened for a second day against the euro.
“The services PMI data was pretty punchy” and pushed gilts lower, said Jason Simpson, a U.K. rates strategist at Banco Santander SA in London. “Yields are biased to the upside in the near-term.”
The 10-year gilt yield climbed three basis points, or 0.03 percentage point, to 2.74 percent at 12:30 p.m. in London, the biggest increase since Sept. 18. The 2.25 percent bond maturing September 2023 fell 0.21, or 2.10 pounds per 1,000-pound face amount, to 95.78.
A gauge of services activity was at 60.3 last month after increasing to an almost seven-year high of 60.5 in August, Markit Economics said in London. The median estimate of economists surveyed by Bloomberg News was for the index to be unchanged. A reading above 50 signals expansion.
House prices climbed 0.3 percent in September, matching the result in August, which was revised down from 0.4 percent, according to Halifax, the mortgage unit of Lloyds Banking Group Plc. Economists surveyed by Bloomberg predicted an increase of 0.5 percent.
The Debt Management Office sold the 10-year gilts at an average yield of 2.742 percent, down from 2.976 at the previous auction on Sept. 12. Investors submitted bids for 1.84 times the amount sold, versus 1.59 last month.
Gilts lost 2.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bunds dropped 1.6 percent and Treasuries fell 2.4 percent.
The pound weakened 0.2 percent to 83.84 pence per euro after appreciating to 83.33 pence on Oct. 1, the strongest since Jan. 17. Sterling was little changed at $1.6233 after rising to $1.6260 on Oct. 1, the highest since Jan. 2.
“Investors had been buying sterling as the data proved to be supportive,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The question now is how long can that last?”
“We’re not going to begin to think about raising interest rates or tightening monetary policy until we see the conditions in the economy where the economy is really growing,” central bank Governor Mark Carney said in an interview with ITV Anglia broadcast yesterday on its website.
The pound strengthened 7.4 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 5.9 percent, while the dollar weakened 0.6 percent.
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