UK gilts trend lower ahead of Q1 GDP data

The UK gilts trended lower Thursday as investors are awaiting the release of the first-quarter gross domestic product (GDP) by the end of this week. Also, the country’s manufacturing PMI for the month of June, due by early next week will add more clarity to the debt market.

The yield on the benchmark 10-year gilts, jumped 4-1/2 basis points to 1.20 percent, the super-long 30-year bond yields climbed nearly 4 basis points to 1.81percent and the yield on the short-term 2-year traded nearly 3-1/2 basis points higher at 0.32 percent by 10:00 GMT.

After Draghi set markets alight on Tuesday, yesterday it was Mark Carney’s turn to make headlines and hit Gilts via his remarks at the ECB Sintra Forum. Perhaps mindful of sterling’s recent depreciation against the euro, the BoE Governor clarified his view expressed last week when he said that “now is not the time” to raise rates. Yesterday he acknowledged that “some removal of monetary stimulus is likely to become necessary”.

Further, Carney made clear that he would support tightening policy only upon certain preconditions being met, emphasising in this respect some pretty big IFs: IF stronger business investment or other components of demand offset weaker consumption growth, IF domestic wage and inflation pressures recover, and IF the economy’s and market’s reaction to the reality of the Brexit negotiations is smooth.

"With BoE Deputy Governor Cunliffe also arguing yesterday that he too is in no rush to vote for higher rates, stating that the committee has “a bit of time to see how [domestic inflation pressure] evolves”, we continue to expect the Bank Rate to remain unchanged this year, not least given the recent weakening of UK GDP growth, falling real wages, and persisting Brexit-related uncertainty," Daiwa Capital Markets commented in its latest research report.

Meanwhile, the FTSE 100 traded 0.26 percent higher at 7,405.50 by 10:30 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bullish at 96.84 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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