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Expectations for Inflation Climb to 4.5 Year Highs in the U.K.

“The U.K. 10-year break-even rate, an index of annual inflation expectations, climbed to the highest level in more than 4 1/2 years after the nation sold index-linked securities at an auction today.

The 30-year break-even rate was close to the highest in almost two years as the Debt Management Office sold 1.6 billion pounds ($2.5 billion) of inflation-linked gilts maturing in 2024 in the second bond sale of the fiscal year starting this month. The pound advanced to the highest level in seven weeks against the dollar. U.K. 10-year government bonds were little changed.

“There is ongoing demand for inflation-protected securities,” said Simon Peck, a fixed-income strategist at Royal Bank of Scotland Group Plc in London. “There’s more room to go in the 30-year area. Longer-term break-even rates can move higher.”

The 10-year break-even rate, derived from the difference in yield between gilts and index-linked securities, rose four basis points, or 0.04 percentage point, to 3.38 percentage points as of 10:52 a.m. London time, after reaching 3.39, the most since September 2008. The 30-year break-even rate was little changed at 3.47 percentage point after touching 3.51 on Feb. 14, the most since August 2011.

The U.K. sold index-linked gilts due in March 2024 at a so- called real yield of minus 1.262 percent, the debt office said on its website. Investors bid for 1.86 times the amount of securities allotted.

Gilt Yields….”

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