UK 10-year gilt yields jump to 1-1/2 month high ahead of BoE Governor Carney’s speech, Q1 GDP

The UK 10-year gilt yields jumped to a 1-1/2 month high Wednesday as investors wait to watch the Bank of England (BoE) Governor Mark Carney’s speech, scheduled to be held later in the day. Also, the release of Q1 GDP by the end of this week is closely eyed by investors for detailed direction in the debt market.

The yield on the benchmark 10-year gilts, jumped 5-1/2 basis points to 1.15 percent, the super-long 30-year bond yields surged 4 basis points to 1.77 percent and the yield on the short-term 2-year traded nearly 2 basis points higher at 0.28 percent by 09:30 GMT.

Yesterday saw a significant selloff in global bond markets, which was triggered not least by Mario Draghi’s upbeat assessment of inflationary pressures in the euro area. The central bank President noted that “deflationary forces have been replaced by reflationary ones.”

Central banker comments continue to be the main driver of markets at the moment. While BoE Governor Carney’s comments yesterday were very much in-line with current known policy, the market has latched onto more hawkish comments from ECB President Draghi and valuation comments from Fed Chair Yellen.

In regards to the former, President Draghi said that while current policy is correct, "reflationary forces" suggest potential room to pare stimulus, very gradually. The market has interpreted this as tapering the QE programme next year, driving German yields higher and EURUSD up through recent 1.1300 highs. While the bond move is key to supporting the EUR, the broader USD has played its part coming back under pressure.

Lastly, Friday will remain in the limelight, when the final Q1 GDP figures are released. While the BoE anticipates an upwards revision, the data is expected to confirm the previous estimate of 0.2 percent q/q, representing a 0.5ppt slowdown from the pace of growth in Q4 2016. Also of note on Friday will be the current account figures, expected to show an increase in the current account deficit in Q1 after a notable drop at the end of the year.

Meanwhile, the FTSE 100 traded 0.20 percent lower at 7,419.00 by 09:40 GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 45.66 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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