UK gilts rebound post unchanged unemployment rate; investors eye April employment report

The UK gilts rebounded Wednesday after reading the country’s unchanged unemployment rate for the month of April. Also, the Bank of England’s (BoE) monetary policy meeting, scheduled to be held on June 15, will provide further direction to the debt market.

The yield on the benchmark 10-year gilts slumped nearly 3 basis points to 1.00 percent, the super-long 30-year bond yields plunged 4-1/2 basis points to 1.70 percent and the yield on the short-term 2-year traded 1-1/2 basis points lower at 0.12 percent by 10:20 GMT.

Today’s data for the three months to April showed that the UK labour market remains tight with the unemployment rate as expected to stick at its cyclical low of 4.6 percent. However, a sharper-than-expected slowdown in employment growth is yet another hint that economic activity may be decelerating. That, along with continued subdued wage growth, provides support for leaving UK interest rates at their current very low level.

The unemployment rate matched the lows seen since the 1970s. So far, however, this seemingly tight labour market appears to be having little upward pressure on wages.  

"We expect the upward push from a weaker sterling and the remainder of the hikes in domestic energy tariffs announced so far will continue to impart clear upward pressure to inflation. For some time our expectation has been that inflation would rise more sharply than that expected by the BoE, peaking above 3 percent later this year," Lloyds Bank commented in its latest research report.

Meanwhile, the FTSE 100 traded 0.47 percent or 35.31 points higher at 7,535.75 by 10:40 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 0.76 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex