Azernews.Az

By Bloomberg

U.K. government bonds extended a weekly decline on speculation the yields the securities offer aren’t attractive enough given the nation’s improving prospects.

As reports this week showed wage growth is accelerating in Britain and retail sales are exceeding economist forecasts, Citigroup Inc.’s Economic Surprise Index, which measures whether data are above or below analyst estimates, climbed to the highest since October. The outlook also boosted the pound, helping inspire its biggest weekly jump against the euro in more than three months.

The yield on 10-year gilts rose two basis points, or 0.02 percentage point, to 1.89 percent at 12:50 p.m. London time. The rate climbed 10 basis points yesterday and is up nine basis points this week. The 2.75 percent bond due in September 2024 fell 0.205, or 2.05 pounds per 1,000-pound ($1,565) face amount, to 107.58.

“Ten-year yields below 2 percent don’t look right” given the U.K.’s fundamentals, said Simon Peck, a rates strategist at Royal Bank of Scotland Group Plc in London. “There hasn’t been any one particular macro driver this week but in general the data have been positive.”

Retail sales, including auto fuel, increased 1.6 percent in November, the most this year, the Office for National Statistics said yesterday. Economists forecast a 0.4 percent gain, according to the median estimate in a Bloomberg News survey. Wages were 1.4 percent higher in the three months through October compared with a year earlier, up from 1 percent higher in the third quarter, a separate report showed Dec. 17.

Upside Surprise

Citigroup’s Economic Surprise Index for the U.K. was at minus 15.4 yesterday, up from as low as minus 43.70 in November.

The pound was little changed at 78.47 pence per euro today having appreciated 1 percent since Dec. 12, the biggest gain since the period ended Sept. 19. Sterling fell 0.2 percent to $1.5646.

The U.K. currency gained 5.3 percent in the past year, the best performer after the dollar among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback surged 11 percent, while the euro fell 1.6 percent.

Gilts returned 13 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities earned 9.8 percent and U.S. Treasuries 5.8 percent.

U.K. bonds have been supported this year as the global inflation outlook weakens amid a slump in commodity prices, leading traders to pare back wagers on higher borrowing costs. The annual rate of consumer-price growth declined to 1 percent last month, the slowest since 2002, from 1.3 percent in October, the ONS said this week. The central bank’s official rate has been at a record-low 0.5 percent since March 2009.

Britain’s 10-year yield touched 1.69 percent on Dec. 16, the least since May 2013.

Forward contracts based on the sterling overnight interbank average, or Sonia, show investors aren’t expecting a 25 basis- point increase in the rate before the end of November. About four months ago, the market was priced for an increase in February 2015.