UK Gilts slump on strong manufacturing PMI

The United Kingdom 10-year bonds slumped on Friday on firm economic data. The 10-year gilt yield, which is inversely propositional to bond prices rose 4 bps to 1.45 pct and 3-year gilts yield also up 2bps at 0.62 pct. The UK gilts traded 17 ticks lower than the settlement prices of 121.22, but only 1 tick lower than the close of 120.06.

March Markit/CIPS Manufacturing PMI came in slightly below forecast at 51.0 (consensus was for 51.2), from previous 50.8. The modest bounce was solely due to domestic orders and highlights the lack of impetus noted from global markets. Gilts are rather unimpressed by the stagnating economy and are trading sideways at 120.91.

The house price data released in early European session showed a rise of 0.8% m/m (consensus was for 0.5% m/m ), from previous 0.4% and rose 5.7% y/y, from prior 4.8%) as buyers and investors rushed to beat the rise in stamp duty, pushed bonds prices further down.

While our bias is on the side of widening, the ECB is not buying Gilts uncertainty about the UK/EU referendum is evidently favouring Gilts for the safe-haven role.