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UK bond yields head for biggest weekly rise since June

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UK bond yields head for biggest weekly rise since June 1

LONDON (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.

The spread between yields on British 10-year debt and its German equivalent widened to 100 basis points for the first time since March, partly reflecting the faster roll-out of COVID vaccines in Britain which has lifted some of the country’s economic gloom.

Ten-year gilt yields peaked at 0.693% at 1429 GMT, their highest since March 20 during the so-called “dash for cash” at the onset of the pandemic.

Based their latest level they are on course of just under 17 basis points the biggest since the week to June 5.

Sterling also rose above $1.40 for the first time in nearly three years on Friday although it was flat against the euro.

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)

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Stronger pound dents FTSE 100; Lloyds rises

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Stronger pound dents FTSE 100; Lloyds rises 2

By Shivani Kumaresan

(Reuters) – Britain’s main stock index fell on Wednesday as a stronger pound weighed on exporters, while Lloyds Banking Group rose 2.2% after the bank resumed a dividend despite a sharp drop in annual profit.

The blue-chip FTSE 100 index was down 0.3% by 0930 GMT as sterling rose to a three-year high against the dollar. [GBP=]

Financial stocks including HSBC Holdings and Standard Chartered were among the biggest drags on the FTSE 100, tracking a 2.9% slump in Hong Kong’s Hang Seng index on concerns over policy tightening. Losses in consumer stocks Unilever PLC and British American Tobacco also weighed on the index.

“The market just seems to have lost a bit of energy and the fact that we are seeing high yields has made investors a little nervous,” said Craig Erlam, senior market analyst at OANDA.

The FTSE 100 has recovered about 35% from a coronavirus-driven crash last year, but it has come under pressure more recently as fears of rising inflation have hit equities worldwide.

The mid-cap FTSE 250 index gained 0.5%, led by consumer discretionary and industrials stocks.

In company news, Metro Bank fell 6.9% as it posted a much bigger annual loss and said it expects defaults to rise through the year as government support measures set in place due to the COVID-19 crisis are wound down.

Drugmaker AstraZeneca Plc shed 1.4%, as it told the European Union it expects to deliver less than half the COVID-19 vaccines it was contracted to supply in the second quarter.

Consumer goods maker Reckitt Benckiser slipped 0.1% even as it capped 2020 with the strongest sales in its history, while Aviva slid 0.4% as it agreed to sell its 40% stake in a joint venture in Turkey for 122 million pounds ($173.17 million).

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Anil D’Silva)

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Sterling rises past $1.42, hits highest vs euro in a year

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Sterling rises past $1.42, hits highest vs euro in a year 3

By Ritvik Carvalho

LONDON (Reuters) – Sterling jumped above $1.42 on Wednesday, coming within touching distance of $1.43, while also reaching a year’s high against the euro as analysts retained their bullish views on the currency.

The pound is the best-performing G10 currency this year, up nearly 4% against the dollar and 3.2% against the euro as investors bet Britain’s rapid COVID-19 vaccine rollout will lead to a quicker economic rebound.

Analaysts also point to relief over avoiding a “no-deal” Brexit with the European Union at the end of last year as benefiting the pound, with the market looking through short-term headwinds and disruption. (Graphic: Reflation trade’s big FX winner: GBP, https://fingfx.thomsonreuters.com/gfx/mkt/ygdpzejmjvw/Pasted%20image%201614157016847.png)

In Asian trading hours, sterling rose to $1.4295 against the dollar, its highest since April 2020. It climbed to its highest against the euro in a year, touching 85.40 pence.

In London trade, sterling was 0.5% higher on the day at $1.4175 and 0.3% higher to the euro at 85.82 pence by 0900 GMT.

“Seemingly GBP is benefiting from a positive vaccine rollout and short-term Brexit adjustment problems disappearing, which also from a relative rates perspective is supporting GBP,” said Lars Sparresø Merklin, senior analyst at Danske Bank.

“That said, momentum seems stretched and EUR/GBP seems oversold based on our short-term models, and hence we may see short EUR/GBP take a breather from here.”

Also supporting sterling has been a pushing back of market expectations of negative rates by the Bank of England. BoE Governor Andrew Bail is due to testify before the UK parliament’s Treasury Committee today, a day after his U.S. counterpart, Federal Reserve Chair Jerome Powell, testified before the U.S. Senate Banking Committee.

“Bailey … will face a similar challenge to that faced by Powell yesterday: delivering a cautious and dovish message despite clearly encouraging recovery prospects,” strategists at ING said in a note to clients.

“Any reference to negative rates will, as usual, have a magnified market impact, but markets have now moved away from the negative interest rate policy narrative in the UK and some generic reference to openness to more monetary stimulus should fall short of revamping these expectations. Any setback in the GBP rally –- still fuelled by solid vaccination progress — should be short-lived.”

(Reporting by Ritvik Carvalho; editing by Larry King)

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European shares strengthen, but tech stocks under pressure

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European shares strengthen, but tech stocks under pressure 4

LONDON (Reuters) – European shares opened generally higher on Wednesday but world shares remained in the red after a weak Asian session, even after Fed Chair Jerome Powell pushed back against inflation fears.

Falling tech stocks pulled Asian markets lower overnight, as recent gains in U.S. Treasury yields put lofty valuations under pressure.

In his testimony before the U.S. Senate, Federal Reserve Chair Jerome Powell did not seem too worried about rising yields, telling Congress they were a statement on the market’s confidence in the pandemic recovery.

The 10-year U.S. Treasury yield edged back down below its recent one-year high, although it rose as European markets opened.

“Powell’s comments reinforce our view that the increase in inflation expectations is most likely transitory and that higher Treasury yields primarily reflect optimism over the economic recovery and the reflation trade,” wrote UBS chief investment officer for global wealth management, Mark Haefele, in a note to clients.

“Investors should expect an extended period in which interest rates remain below inflation.”

Europe’s STOXX 600 rose in early trading, up 0.1% at 0843 GMT, Germany’s DAX was up 0.4%, but London’s FTSE 100 was down 0.7%.

The MSCI world equity index, which tracks shares in 49 countries, was down 0.4%, having lost 2.3% since it last hit an all-time high on Feb. 16.

U.S. futures pointed to a weaker open for Wall Street, with futures for the tech-heavy Nasdaq in decline for the seventh consecutive day.

Tech stocks are particularly sensitive to rising yields because their value rests heavily on earnings in the future, which are discounted more deeply when bond returns go up.

Bitcoin recovered somewhat, up 3.3% at around $50,500 at 0846 GMT, but was still down 13.5% from the all-time high above $58,000 it reached on Sunday.

“I suspect we are in a bubble in certain places, that stimulus cheques will provide more fire to that at some point but that risk assets are going to be constantly buffeted by the risk of higher yields and inflation regardless of whether it has any structural roots or not,” wrote Deutsche Bank strategist Jim Reid in a note to clients.

One year on from the start of the COVID-19 market crash, financial market participants were generally upbeat about the prospect of vaccine rollouts, lockdowns ending and economies re-opening.

Strong exports and solid construction activity helped the German economy to grow by a stronger-than-expected 0.3% in the final quarter of last year, the Federal Statistics Office said on Wednesday, revising up an earlier estimate.

U.S. consumer confidence increased in February and Britons rushed to book foreign holidays after the government laid out plans to relax restrictions. But EU government leaders will agree on Thursday to maintain curbs on non-essential travel within the bloc.

The dollar was down 0.1% versus a basket of currencies at 0849 GMT, while euro-dollar was slightly up at $1.2165.

The benchmark 10-year German Bund was a touch lower at -0.325%.

Elsewhere, oil prices slipped after industry data showed a surprise build in U.S. crude stocks last week.

Brent crude futures have still gained 26% so far in 2021 and U.S. West Texas Intermediate (WTI) crude futures have risen 27%.

Spot gold rose, hovering just below the previous session’s one-week high.

(Reporting by Elizabeth Howcroft; Editing by Nick Macfie)

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