UK gilts rally on lower Q1 GDP, slack in energy prices

The UK gilts rallied Thursday after reading a lower-than-expected gross domestic product (GDP) for the first quarter of this year amid slack in energy prices ahead of OPEC’s agreement to extend the output cut by another nine months.

The yield on the benchmark 10-year gilts, slumped 3-1/2 basis points to 1.04 percent, the super-long 30-year bond yields plunged 3 basis points to 1.66 percent and the yield on the short-term 2-year traded 2-1/2 basis points lower at 0.08 percent by 09:10 GMT.

The UK economy grew 0.7 percent in the final quarter of 2016, according to updated data from the Office for National Statistics, revised higher from a prior estimate of 0.7 percent. However, revisions mean the economy now grew 1.8 percent in 2016, less than the 2.0 percent previously thought.

The news of faster the previously thought growth at the end of last year is marred by worrying signs about the durability of the upturn. A slowdown in consumer spending and a drop in business investment raise questions about the extent to which such strong growth can be sustained. Consumer spending rose by 0.7 percent, making the weakest contribution to the economy for a year, while business investment fell 1.0 percent.

Lastly, the UK gilts have been closely following developments in oil markets because of their impact on inflation expectations. The International benchmark Brent futures fell 0.02 percent to USD53.94 and West Texas Intermediate (WTI) fell 0.27 percent to USD51.22 by 09:20 GMT.

Meanwhile, the FTSE 100 rose 0.09 percent or 7.10 points to 7,522.00 by 09:20 GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bearish at -95.17 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex