U.K. government bonds declined, paring this month’s advance, as equities rose amid renewed optimism the European Union will take steps to resolve Greece’s debt crisis without forcing investors to incur losses.
Two-year note yields also increased after reaching the lowest this year last week. The pound weakened against the euro as Jean-Claude Juncker, head of the group of euro-area finance ministers, said EU leaders will decide on additional aid for Greece by the end of June and have ruled out “total restructuring” of the nation’s debt. The FTSE 100 Index (UKX) of U.K. shares advanced 1 percent.
“We’re coming toward the end of the gilt-market rally,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Ltd. in Edinburgh, a broker for banks and investors. “There seems to be a slight improvement in risk appetite today, and that’s taken the shine slightly off gilts. Gilts look pretty rich at these levels.”
The 10-year bond yield rose to 3.32 percent at 11:38 a.m. in London from 3.29 percent on May 27. The market was closed yesterday for a holiday. The price of the 3.75 percent security maturing in September 2020 fell 0.355, or 3.55 pounds per 1,000- pound ($1,651) face amount, to 103.43. The yield is down from 3.43 percent on April 29.
The two-year note yield rose to 0.94 percent from 0.92 percent on May 27, paring the security’s third-straight monthly advance.
U.K. bonds and the pound rose last week as investors sought an alternative to euro-denominated assets amid concern that the debt crisis would worsen. Gilts have returned 2.5 percent so far this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, outperforming German bunds, with a 0.2 percent profit. U.S. Treasuries have made investors 2.6 percent.
The pound weakened 0.7 percent to 87.32 pence per euro and was 0.1 percent stronger at $1.6495.
U.K. central bank officials are locked in a debate over whether to tighten monetary policy after inflation accelerated to 4.5 percent in April, the fastest since 2008. Bank of England Governor Mervyn King has said it’s too soon because the recovery remains weak. The European Central Bank and Sweden’s Riksbank have already started raising rates.
The British Chambers of Commerce pushed back its forecast for an increase in Bank of England interest rates to August from May and cut its U.K. growth forecast for the year to 1.3 percent from 1.4 percent.