UK gilts plunge as investors shrug off Brexit as a possibility, Yellen hawkish comments

The UK gilts plunged on Tuesday as investors appear to have concluded that the UK will vote to stay in the European Union in June. Also, investors drove-out from safe haven after Federal Reserve Chief Janet Yellen suggested that an interest rate hike could be around the corner. The yield on the benchmark 10-year bonds, which moves inversely to its price, moved higher 4 basis points to 1.477 percent and the yield on the short-term 2-year bonds also climbed 3 basis points to 0.491 pct by 0855 GMT.

According to the latest Brexit ORB phone poll, 51% voted to stay in the European Union while 46% voted in favour of an exit. The remaining were however, indecisive. Earlier poll by Betfair Group PLC published on WSJ, opinion polls show Britain leaning toward a vote to stay in the EU in the June 23 referendum. Bookmakers have cut the odds on a vote to “leave” to 19 percent from 37 percent in April.

Moreover, the EU referendum poll by BMG 44 percent favoured to 'remain', 45 percent voted for leave and remaining were inconclusive. Similarly, the U.K poll by YouGov shows the public evenly split on Brexit at 41-41 percent. This survey, conducted on 23-24 May, represents a net 4 percent swing against European Union membership since the organisation's poll last week. On Monday, the U.K public opinion poll released by Opinium over the weekend showed 44 percent of the voters favoured remaining in the EU and 40 percent supported leaving the European Union. However, this is similar to most recent surveys showing a modest balance against Brexit.

In addition, 88 percent of UK-based economists believe that Brexit, along with leaving the single EU market, would be damaging to the country's economic prospects over the next 5 years, according to a survey of over 600 professionals in the business, academic and public sectors carried out by Ipsos/Mori for the Observer.

In addition, the second estimate of UK’s first quarter GDP growth was unrevised from the earlier estimate of 0.4 percent q/q, on par with consensus projections. The annual growth was slightly lowered to 2 percent y/y, the slowest growth since Q1 2013. The construction output and industrial production data after the release of first estimate of GDP was weak, but it did not provide much reason to anticipate a downward revision in the second estimate of GDP. Private consumption was revised up to 0.7 percent q/q, from 0.6 percent, as was government spending, to 0.4 percent, and fixed investment, to +0.5 percent q/q (a major upgrade from -1.1 percent). On the other hand, exports were revised down sharply to -0.3 percent (from +0.1 percent previously), while imports were trimmed to 0.8 percent q/q.

Meanwhile, The FTSE 100 trading lower 0.17 at 6,260 by 0910 GMT.