UK gilts rally as Brexit outlook still remains clouded amid muted trading day

The United Kingdom’s gilts rallied during Friday’s afternoon session ahead of tomorrow’s further meeting between Theresa May and Jean-Claude Juncker and Sunday’s special Summit.

Today might have been expected to be light on substantive Brexit news, allowing the dust to settle on yesterday’s draft Political Declaration on the future UK-EU relationship to accompany the draft Brexit Withdrawal Treaty released last week.

The yield on the benchmark 10-year gilts, plunged nearly 4 basis points to 1.391 percent, the super-long 30-year bond yields slumped nearly 2 basis points to 1.940 percent and the yield on the short-term 2-year traded nearly 2-1/2 basis points lower at 0.748 percent by 11:30GMT.

EU officials are meeting to discuss the text, with Spain’s Prime Minister Sanchez having signalled its readiness to ‘veto Brexit’ if his demands for a veto on the future trade relationship with Gibraltar are not met, Daiwa Capital Markets reported.

"On balance, we do not, however, expect those Spanish objections to prevent the endorsement of the Political Declaration and Withdrawal Agreement on Sunday – unanimity is not required on the Withdrawal Agreement, Spain would still have a veto on the future trade deal if and when it is agreed, and the EU27 might be able to accommodate Spanish demands in a side document," the report commented.

Nevertheless, Gibraltar is undoubtedly a thorny issue, and the minority nature of Spain's government means that it will need to be seen to come away with something that looks more than a meaningless gesture.

Meanwhile, the FTSE 100 traded tad higher at 6,963.00 by 11:40GMT, while at 11:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bullish at 119.049 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex