UK gilts rally as investors freak over possibility of Brexit deadline extension

The United Kingdom’s gilts rallied during European trading hours Wednesday as investors their shifted attention towards riskier assets amid possibility of an extension of the Brexit deadline beyond this month.

The yield on the benchmark 10-year gilts, slumped 3 basis points to 0.679 percent, the 30-year yield suffered 2 basis points to 1.212 percent and the yield on the short-term 2-year plunged nearly 3 basis points to 0.510 percent by 11:15GMT.

The Brexit Article 50 deadline is bound to be extended beyond the end of this month. The specificities of that extension, and quite what it will be used for, is still unclear. But on balance this morning, a December general election – in line with our baseline scenario – looks most likely, Daiwa Capital Markets reported.

Yesterday evening in the House of Commons, UK PM Johnson won a majority, at the so-called second reading, in principle in favour of his Brexit Withdrawal Agreement Bill (or WAB), by 329 votes to 299. That might have allowed the Bill to move straight to the committee stage, where MPs would scrutinize the legislation and propose detailed amendments, the report added.

But Johnson was subsequently defeated, by 322 votes to 308, on the so-called programme motion, whereby he had sought to seriously limit the scope for scrutiny and amendment by forcing the legislation through the House of Commons by tomorrow night, Daiwa further noted in the report.

Meanwhile, the FTSE 100 remained nearly flat at 7,160.19 by 11:20GMT.