Credit: REUTERS/DADO RUVICBy David Milliken
LONDON, Feb 19 (Reuters) - British government bond prices fell again on Friday as a global debt sell-off continued on expectations of hefty U.S. fiscal stimulus, putting gilt yields on course for their biggest weekly rise since June.
Sterling also rose above $1.40 for the first time in nearly three years on Friday and held close to its highest in nearly a year against the euro.
Bond yields have been rising in recent weeks on expectations of a rebound in growth, and possibly inflation, due to the roll-out of vaccines for the coronavirus and U.S. plans for $1.9 trillion of fiscal stimulus.
The spread between yields on British 10-year debt and its German equivalent DE10GB10=RR exceeded 100 basis points for the first time since March on Friday, partly reflecting the faster roll-out of COVID vaccines in Britain.
The brighter economic outlook in Britain has also dented the likelihood that the Bank of England would cut interest rates below zero, reducing gilts' appeal relative to riskier assets, said Oliver Blackbourn, a portfolio manager at investment company Janus Henderson.
"Recent BoE comments on negative interest rates not being imminent have reinforced this view and helped lift the real yields on UK gilts," he said.
BoE policymaker Gertjan Vlieghe said on Friday that negative interest rates might be needed later this year or in 2022 if unemployment proved persistent, but that his central case was that no more stimulus would be needed.
Ten-year gilt yields GB10YT=RR peaked at 0.706% at 1512 GMT, their highest since March 20 last year when there was a "dash for cash" at the onset of the pandemic.
Based on their latest level they are on course for a weekly rise of just under 17 basis points, matching the rise seen in the week to June 5.
Gilt yields surged at the start of the COVID pandemic due to a scramble for U.S. dollar assets, until the Bank of England calmed markets by restarting its bond purchase programme.
If yields stay where they are, February will see the biggest increase in 10-year gilt yields since October 2016, when markets judged Britain's referendum vote to leave the EU was having less of an immediate impact on the economy than first thought.
(Reporting by David Milliken; Editing by William Schomberg)
((david.milliken@reuters.com; +44 20 7542 5109; Reuters Messaging: david.milliken.thomsonreuters.com@reuters.net))
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