UK gilts gain as mortgage approvals hit lowest since January last year

The UK gilts gained Tuesday after data showed that the country’s mortgage approvals fell to the lowest in 18-months as consumer borrowing lessened following the decision to leave the European Union.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell 2-1/2 basis points to 0.649 percent, the super-long 40-year bond yield dipped 3 basis points to 1.101 percent and the yield on short-long 2-year bond slid nearly 2 basis points to 0.151 percent by 11:00 GMT.

The UK mortgage approvals fell to 60.9k in July, market consensus was for 61.9k, from 64.2k. This is the lowest reading in 1-1/2 years which reflects uncertainty about the housing market due to Brexit vote.

The Bank of England also reported that the net mortgage lending of 2.7 billion pounds was below expectations of 3.1 billion pounds, from previous 3.2 billion, and consumer credit was lower at 1.2 billion as well, compared with expectations of 1.7 billion and June's 1.9 billion.

On Friday, the UK GDP growth was left unchanged at its preliminary estimate of 0.6 percent q/q. On an annual basis, it also remained flat at 2.2 percent y/y from its preliminary reading. The new information though is the expenditure-based breakdown, which shows that acceleration in private consumption, to 0.9 percent q/q, as compared to 0.7 percent in the first quarter of 2016, was the key driver behind the GDP growth pick-up from 0.4 percent in Q1.

Moreover, with a recovery in business investment (0.5 percent q/q vs -0.6 percent in Q1) provided some support. The data did not capture the effects of the 'Brexit' decision, which we think will start to show up from the third quarter figures onwards.

Lastly, investors will remain keen to focus on the next week's ECB meeting, when there is a chance of another small deposit rate cut.

Meanwhile, the FTSE 100 traded 0.10 percent higher at 6,842 by 11:00 GMT.