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By Bloomberg

U.K. government bonds fell, pushing 10-year yields to the highest in seven weeks, after Scotland rejected independence from the U.K., damping bets that interest rates would stay lower for longer.

Rates on two-year gilts climbed to the most since July as official results after counting through the night showed 55 percent of Scottish voters supported the "no" campaign compared with 45 percent who backed independence. Opinion polls earlier this month had suggested the vote was too close to call, fueling bets the Bank of England would need to delay policy tightening if Scotland left the U.K.

"The focus is obviously going to shift to monetary policy, and on that front, rate hikes are coming," said Vatsala Datta, a U.K. rates strategist at Royal Bank of Canada in London, in a phone interview. "The market will be more reactive to incoming data and monetary policy expectations now."

The 10-year gilt yield rose two basis points, or 0.02 percentage point to 2.59 percent at 8:34 a.m. London time after touching 2.61 percent, the highest since Aug. 1. The 2.75 percent bond due September 2024 fell 0.155, or 1.55 pounds per 1,000-pound ($1,646) face amount, to 101.43.

Yields on two-year gilts, seen as more sensitive to interest-rate expectations, climbed as much as five basis points to 0.92 percent, the most since July 7.

Forward contracts based on the sterling overnight interbank average, or Sonia, show investors pushed back bets on a 25 basis-point increase in borrowing costs to May, from February as recently as last month.

The pound advanced as much as 0.8 percent to $1.6525, the strongest level in more than two weeks, before paring gains to $1.6465. Sterling appreciated 0.6 percent to 78.35 pence per euro, after strengthening to 78.10 pence, a level last seen in July 2012.

Gilts returned 6 percent this year through yesterday, Bloomberg World Bond Indexes show. German securities gained 6.3 percent, while U.S. Treasuries earned 3.1 percent.