Property shares weigh on FTSE due to bond rise - London Report

Britain’s top share index yesterday extended its retreat from record highs, pulled down by property shares as a rise in gilt yields eroded the appeal of interest rate-sensitive stocks.

The blue chip FTSE 100 index closed down 0.5 per cent at 6,876.47 points, extending Friday’s decline and pushing the FTSE further away from a record high of 6,974.26 set last week.

Property stocks were among the worst performers on the FTSE, mainly due to a rise in UK government bond yields.

The premium over German bond yields rose to its highest in almost 18 years yesterday, after the European Central Bank began its bond-buying programme and sent Eurozone debt prices soaring.

That yield premium had already widened on Friday after robust labour data from the US raised expectations that interest rates would rise sooner.

The prospect of higher US rates hit Irish construction group CRH, which is the leading producer of asphalt for highway construction in America.

Its shares fell around four per cent, making it the worst performer in the FTSE 100.

The backdrop of rising rates also hit property stocks such as Land Securities and British Land, which both fell around two per cent.

The higher dividend yields offered by property stocks lose their appeal when interest rates are rising.

Other highly geared equity sectors declined as well yesterday, including utilities, with United Utilities down 0.3 per cent while Severn Trent slipped 0.4 per cent.

However, WPP, the world’s biggest advertising group, gained 1.2 percent after saying demand improved in January.

Engineering firm Weir Group led the FTSE 100, gaining more than four per cent, while mining and commodities company Glencore added more than 2.5 per cent.

Lloyds Banking Group shares fell 1.3 per cent after the government announced the sale of another £500m of shares, taking its stake in the lender to below 23 per cent.

The shares were sold at a level above the 73.6p average price the previous government paid for them.

Outside the top flight, shares in Thomas Cook slipped three per cent after rising by 24 per cent on Friday following the purchase of a five per cent stake in the business by Chinese conglomerate Fosun.