U.K. Yields Rise on Fed; Pound Reaches 3-Year High Versus Aussie

U.K. government bonds fell, with 10-year yields touching a two-month high, after Federal Reserve minutes showed officials may reduce debt purchases and data pointed to accelerating British growth.

Gilts underperformed other European sovereigns, with the extra yield that investors demand to hold U.K. 10-year bonds instead of similar-maturity German bunds expanding to the most since October 2005. The pound strengthened versus all of its 16 major counterparts, reaching three-year highs against the Australian and Canadian dollars, after an industry report showed a measure of new orders at British factories rose to the highest in almost two decades in November.

The benchmark 10-year yield climbed nine basis points, or 0.09 percentage point, to 2.82 percent at 5:28 p.m. London time, after rising to 2.87 percent, the highest since Sept. 24. The 2.25 percent bond due in September 2023 fell 0.705, or 7.05 pounds per 1,000-pound ($1,617) face amount, to 95.17.

U.S. policy makers “generally expected” improvement in employment data that would “warrant trimming the pace of purchases in coming months,” according to minutes of the Fed’s Oct. 29-30 meeting released yesterday. The central bank buys $85 billion of Treasuries and mortgage-backed securities a month. The Fed next meets on Dec. 17-18.

(Source: Bloomberg)