Pound falls below $1.60 on expectation BOE may signal further stimulus

U.K. Gilts

The 10-year gilt yield was at 2.03% after falling as much as two basis points. The price of the 1.75% bond due in September 2022 was 97.595.

“Investors are unwilling to take major positions ahead of tomorrow’s BOE meeting,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “We remain bearish about the medium-term outlook, targeting 2.60% for 10-year yields by year-end.”

The 10-year break-even rate, the difference in yield between gilts and index-linked securities, narrowed for a third day amid speculation officials will adjust the way the retail- price index is calculated. The rate shrank less than one basis point, or 0.01 percentage point, to 2.66%.

The U.K. will announce the results tomorrow of a consultation into amending its RPI calculation to counter a widening disparity with the consumer-price index, the basis for the Bank of England’s policy target.

“Likely changes to the measurement of U.K. RPI inflation would be significantly negative for holders of gilt linkers,” Alan James, head of inflation-linked bond research at Barclays Plc in London, wrote today in a note to clients. “This may limit international demand for nominal gilts.”

Gilts lost 1.3% this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.1% and Treasuries fell 0.5%.

Bloomberg News

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