UK gilts mixed on improved data, BoE repeated difficulties in bonds buying

The UK gilts traded narrowly mixed Wednesday after recent economic data came out stronger than expected. Also, gilt prices underpinned by repeated difficulties the BoE is facing when buying long-dated issues as part of its new QE programme.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell 1 basis point to 0.633 percent, the super-long 40-year bond yield climbed 1 basis point to 1.108 percent and the yield on short-long 2-year bond slid 1 basis point to 0.145 percent by 10:50 GMT.

The United Kingdom August GfK consumer confidence improved to -7, better than the market expectations of -8 fall, from down -12 in July. However, at -7, it's the second lowest in more than 2 years. On the other hand, Lloyds Business Barometer fell to 16 in August, a 5 year low, from 29 in July.

Additionally, the latest house price survey from the Nationwide that surprised on the upside with a rise of 0.6 percent m/m (5.6 percent y/y) in August, against market expectations for -0.3 percent (+4.8 percent y/y).

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 0.23 percent lower at 6,804 by 10:50 GMT.