UK gilts plunge following improvement in January trade balance; investors defy weak manufacturing production

The UK gilts plunged Friday, tracking improvement in the country’s trade balance during the month of January. However, investors have largely defied the worse-than-expected manufacturing production during the same month.

The yield on the benchmark 10-year gilts, which moves inversely to its price, jumped nearly 2-1/2 basis points to 1.25 percent, the super-long 30-year bond yields climbed nearly 2 basis points to 1.83 percent and the yield on the short-term 2-year traded 1-1/2 basis points higher at 0.12 percent by 09:50 GMT.

Goods exports rose 2.8 percent in November, according to the Office for National Statistics, building on a 6.7 percent rise in October. Over the latest three months, exports of goods are 4.6 percent higher than in the previous three months, suggesting the UK is seeing some benefit of the weakening of sterling.

Imports are meanwhile just 3.2 percent higher over the same period. With imports of services down 0.1 percent over the same period while exports of services rose 0.8 percent, the trade deficit in the latest three months was the lowest since July, albeit still historically high at just over GBP11 billion.

In contrast, output of the manufacturing and construction industries fell more than expected in January, signalling a disappointing start to the year. Factory output was down 0.9 percent in the opening month of 2017 against expectations of a 0.4 percent decline, while construction sector output dropped 0.4 percent compared to forecasts of a 0.2 percent fall, according to the Office for National Statistics.

Meanwhile, the FTSE 100 rose 0.39 percent to 7,342.80 by 10:10 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 21.97 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex