UK gilts shrug off solid retail sales data; 10-year yield falls to 1-week low as coronavirus fear haunts

The United Kingdom’s held gains during European trading hours on Thursday even as the country’s January retail sales remained solid and promising, with month -over- month data rising to seven month high of 0.9 percent.

The yield on the benchmark 10-year gilts, fell 1 basis point to 0.591 percent, the 30-year yield plunged about 2 basis points to 1.069 percent and the yield on the short-term 2-year dipped 1 basis point to 0.513 percent by 11:20GMT.

“January's retail sales figures showed that December's election result gave consumers the confidence to reopen their wallets. The more recent flooding and effects of the coronavirus may hinder sales in February and March. Nonetheless, it still seems as though the economy turned a corner at the start of the year,” Capital Economics noted.

“The 0.9% m/m rise in retail sales volumes in January beat the consensus forecast of a 0.7% m/m gain and was only the second monthly rise in sales since July. It was also arguably better than it looked as after excluding a 5.7% m/m drop in fuel sales, which appears to have been due to the 1.9% m/m rise in fuel prices, retail sales rose by a very solid 1.6% m/m. That was the largest gain since May 2018. And this was all despite discounting being much smaller than usual in January. The annual growth rate of the price deflator rose from 0.6% in December to 1.3% in January.”

Capital Economics further noted that “we estimate that the paltry 0.1% q/q rise in household spending in Q4 will be followed by something like a 0.4% q/q gain in Q1. And the Monetary Policy Committee will be pleased to see that the recent surge in sentiment is filtering through into a pick up in actual activity.”

Meanwhile, the FTSE 100 rose about 1 percent to 7,464 by 11:25GMT.