UK gilts rally on unstable political situation; investors await super-long 30-year auction

The UK gilts rallied Wednesday ahead of the Brexit negotiations in Brussels with an unstable political situation. Also, the country’s 30-year auction, due on June 22, will provide detailed direction to the debt market.

The yield on the benchmark 10-year gilts slumped over 2 basis points to 0.97 percent, the super-long 30-year bond yields surged 1-1/2 basis points to 1.66 percent and the yield on the short-term 2-year traded 1-1/2 basis points higher at 0.12 percent by 09:40 GMT.

Today, the Queen’s speech will mark the formal start of the new Parliament. It is set to go ahead even though the government has not yet completed the negotiation of its alliance with Northern Ireland’s DUP.

The speech traditionally sets out the government’s proposed legislative programme, so the focus will be on whether that will now have to be watered down given the government’s precarious position. A Great Repeal Bill in preparation for Brexit was expected to be a key part of that programme, so it will be particularly interesting to see what is said about this.

Aside from that, Bank of England (BoE) Chief Economist Andy Haldane is scheduled to give a speech in Yorkshire at midday. He voted to keep interest rates unchanged last week. Elsewhere, UK public finances and the US existing home sales are likely to attract limited attention.

Meanwhile, the FTSE 100 traded 0.15 percent higher at 7,535.75 by 10:30 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at -45.96 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex