UK gilts slump ahead of BoE monetary policy decision; better-than-expected PMIs support

The UK gilts slumped Thursday ahead of the Bank of England’s monetary policy decision. Also, better-than-expected PMI figures supported the cause.

The yield on the benchmark 10-year gilts, which moves inversely to its price, rose 2-1/2 basis points to 1.193 percent, the super-long 40-year bond yield jumped 4 basis points to 1.712 percent and the yield on short-term 2-year bounced 2 basis points to 0.205 percent by 10:00 GMT.

The UK October services sector PMI reading of 54.5, higher than the market expectations of 52.4 following the easing to 52.6 in September. As it lies above the market consensus prediction of 52.4, it should be interpreted as gilts negative. It also adds to the case for no monetary policy changes from the BoE later today.

On Wednesday, the UK’s Markit-CIPS construction PMI climbed to 52.6 in October (overall contraction in the sector that makes up 5.9 percent of GDP), higher than the market expectations of 51.8, from 52.3 in September.

The Bank of England will conclude its November monetary policy meeting on Thursday by 12:00 GMT. We expect the meeting to end in the decisions to maintain the official Bank Rate at 0.25 percent and keep the programme of asset purchases paused at 435 billion British pounds for Gilts and at 10 billion British pounds for corporate bonds.

In addition, the British government bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of England's target. Crude oil futures recovered after an attack on a Nigerian oil pipeline and were also supported by weaker U.S. dollar. The International benchmark Brent futures rose 0.77 percent to $47.23 and West Texas Intermediate (WTI) climbed 0.55 percent to $45.59 by 10:00 GMT.

Meanwhile, the FTSE 100 traded 0.08 percent higher at 6,850.10 by 10:00 GMT.