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By Bloomberg

U.K. government bonds rose for the first time in three days as a report showing house-price growth eased supported the case for policy makers to leave borrowing costs at a record low for longer.

The gains pushed 10-year yields down from the highest in more than a week after the Bank of England’s Monetary Policy Committee kept its key interest rate at 0.5 percent, as predicted by all economists in a Bloomberg survey. The pound was little changed against the dollar and euro.

“We’ve still got these broader inflation and growth concerns, which should keep gilts supported,” said Daniela Russell, U.K. rates strategist at Credit Suisse Group AG in London. “We have retraced a little bit back up toward the 2 percent level, but rates remain very low and the front end is pricing in very little in terms of tightening. It’s a case of balancing these rich valuations with the challenging headwinds facing the U.K.”

Benchmark 10-year gilt yields fell four basis points, or 0.04 percentage point, to 1.98 percent at 12:02 p.m. London time. The 2.75 percent bond due in September 2024 gained 0.32, or 3.20 pounds per 1,000-pound ($1,567) face amount, to 106.82. The rate increased 11 basis points in the two days through yesterday, the biggest back-to-back gain since Oct. 17, and taking the yield to 2.02 percent, the highest since Nov. 25.

Losing Momentum

Britain’s bonds rallied in the second half of the year as evidence the economy is losing momentum prompted investors to push back wagers on higher interest rates from the Bank of England. Chancellor of the Exchequer George Osborne pledged yesterday to continue to tackle the budget deficit, leaving the onus on the BOE to drive economic growth. Gross domestic product in 2016 will be 2.2 percent, compared with 2.6 percent predicted in March, Osborne said yesterday, citing the OBR.

“There’s still an ongoing issue of repricing the market to the likelihood of base rate at 0.5 percent for some considerable time,” said Robin Marshall, London-based director of fixed income at Smith & Williamson Investment Management.

Forward contracts based on the sterling overnight interbank average, or Sonia, show traders have delayed bets for a 25 basis-point increase in the U.K. benchmark rate to beyond October as the economic stagnation in its biggest trading partner threatens to infect Britain. As recently as August, the market was priced for an increase in February.

ECB Meeting

The securities have also been supported with their counterparts in the euro area amid slowing inflation and speculation that the European Central Bank, which also decides on policy today, would extend its stimulus.

Home values in the quarter through November rose an annual 8.2 percent, down from 8.8 percent in October and marking a fourth consecutive slowdown, mortgage lender Halifax said today. Prices increased 0.4 percent on the month.

The pound was at 78.51 pence per euro, snapping a three-day gain. It touched 78.33 pence yesterday, the strongest since Nov. 12. Sterling was at $1.5675, after rising 0.3 percent yesterday.

Gilts returned 8.1 percent in the past six months through yesterday, the best performer among developed-nation sovereign debt markets tracked by Bloomberg World Bond Indexes. That compares with 4.6 percent for German securities, the euro area’s benchmark, and 2.5 percent for U.S. Treasuries.