UK gilts plunge after agreement on 21-month post-Brexit transition to avoid 'Hard Border' for Northern Ireland

The UK gilts plunged Tuesday after the country and the European Union agreed to a 21-month post-Brexit transition deal, in an attempt to avoid a ‘hard border’ issue with Ireland, raising optimism among investors in an otherwise, disturbed scenario.

In lieu of this, market participants have also largely shrugged-off the UK’s lower-than-expected February consumer price inflation, leading to a fall in debt prices.

The yield on the benchmark 10-year gilts, jumped nearly 2 basis points to 1.46 percent, the super-long 30-year bond yields climbed nearly 1 basis point to 1.78 percent and the yield on the short-term 2-year traded 3 basis points higher at 0.85 percent by 10:00GMT.

Brexit negotiators Michel Barnier and David Davis said the deal on what the UK calls the implementation period was a "decisive step", but issues still to be resolved include the Northern Ireland border. The transitional period is set to last from 29 March 2019 to December 2020 and is intended to smooth the path to a future permanent relationship.

In contrast, the country’s consumer price inflation (CPI) for the month of February were 2.7 percent higher during the month than they were a year ago, according to data published on Tuesday by the Office for National Statistics. Analysts expected a reading of 2.8 percent from 3 percent in January.

"We do not expect anything particularly new of substance to emerge from the BoE’s monetary policy meeting, which concludes on Thursday. Certainly, we see no chance of rate hike. And after the MPC stated last time around that if the economy were “to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report” we anticipate no substantive change to the MPC’s forward guidance. However, not least due to recent snow disruption, the MPC might raise the prospect of a weaker than expected performance in Q1, that might in due course push back the likely timing of the first rate hike from May," Daiwa Capital Markets commented in its recent report.

Meanwhile, the FTSE 100 traded 0.18 percent higher at 7,054.00 by 10:05 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 43.42 (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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