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U.K. bonds erase gains - 2006/10/24 14:13
U.K. government bonds erased earlier gains, with two-year yields climbing to their highest since June 2004, on expectations the Bank of England will keep raising interest rates to curb inflation.
Two-year yields rose for a third session after an Oct. 20 report showed gross domestic product picked up more than expected in the third quarter. Britain's inflation exceeded the central bank's 2% ceiling for a fifth month in September, a report showed last week, fueling speculation interest rates will be increased into next year.
The yield on the benchmark two-year gilt rose 1 basis point to 5.07% at 11:58 a.m. in London. The price of the 5% security due March 2008 fell 0.01, or 10 pence per 1,000 pound ($1,880) face amount to 99.90. Bond yields move inversely to prices. Ten-year yields were little changed at 4.70%.
Pension funds will probably boost demand at the Debt Management Office's sale of 650 million pounds of inflation- linked securities due in November 2055.
The declines in debt may be also be limited after an index of U.K. factory orders unexpectedly fell in October to the lowest level in nine months, a sign manufacturing in Europe's second- biggest economy may cool.
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