UK gilts hold gains on rising fears of 'Hard Brexit', investors shrug off upbeat inflation

The UK gilts held gains Tuesday on rising fears of a hard Brexit and in the run up to the United Kingdom Prime Minister Theresa May’s speech, scheduled for later in the day. Also, investors have largely shrugged off the upbeat consumer price inflation reading for December.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell 3 basis points to 1.28 percent, the super-long 30-year bond yields also plunged 3-1/2 basis points to 1.95 percent while the yield on short-term 2-year rose 1 basis point to 0.16 percent by 09:55 GMT.

Further, UK PM Theresa May's Brexit speech, is scheduled to be held later today by 11:45 GMT. We expect that she will lay out plan to exit the European Union that would see Britain losing access to the bloc's single market. However, it may be barely surprising that the PM wants to quit the common market.

Moreover, the country’s consumer price inflation (CPI) for December beat market expectations, rising 1.6 percent, from 1.2 percent in November. Also, core inflation, excluding volatile goods like oil and food, rose 1.7 percent in the month, up from 1.4 percent at the previous reading, and again ahead of expectations.

Lastly, according to the latest Citi/YouGov survey, UK’s inflation expectations for the short term remained broadly steady at 2.4 percent whilst expectations for the longer term have risen to 3.0 percent up from 2.8 percent in November.

Meanwhile, the FTSE 100 fell 0.33 percent to 7,303.05 by 10:05 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at -13.61 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex