UK gilts plunge despite contraction in March services PMI amid ongoing Brexit nervousness; construction PMI eyed

The United Kingdom’s gilts plunged during European trading session Wednesday even after the country’s March services activity contracted for the first time since July 2016, posting below the 50-point threshold mark amid ongoing nervousness over Brexit agreement.

Investors will now be eyeing the country’s construction PMI for the month of March, scheduled to be released on April 4 by 13:00GMT for further direction in the debt market.

The yield on the benchmark 10-year gilts, jumped 6 basis points to 1.065 percent, the super-long 30-year bond yields surged 4-1/2 basis points to 1.593 percent and the yield on the short-term 2-year traded 3-1/2 basis points higher at 0.671 percent by 09:00GMT.

At 48.9 in March, down from 51.3 in February, the headline seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index posted below the 50.0 no-change mark for the first time since July 2016.

Aside from the brief dip seen after the EU referendum, the latest reading was the joint-weakest seen over the past decade (equalling the previous low point recorded in December 2012).

Having yesterday evening announced her intention to reject a no-deal Brexit at the end of next week, and instead ask EU leaders for an extension of the Article 50 deadline, in a sharp U-turn from her strategy of almost three years, Prime Minister Theresa May will later today meet with Labour leader Jeremy Corbyn to explore whether a possible compromise based on modifications to her negotiated deal can be found, Daiwa Capital Markets reported.

Of course, the offer of these talks has already gone down like a bucket of sick with Conservative backbenchers and the Northern Irish DUP, upon whose support her Government relies for its survival.

And, given her recent behaviour, the Prime Minister’s sincerity might reasonably be questioned.

"So, we certainly don’t expect a new consensus to emerge from today’s meeting. However, following yesterday’s statement, the seemingly inevitable failure of May and Corbyn to agree on a deal today would then mean that a range of options will be presented to MPs to consider at the start of next week, leaving open the door to a new breakthrough," the report added.

Meanwhile, the FTSE 100 remained flat at 7,391.75 by 09:20GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bullish at 105.37 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex