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UK gilts slump after PM May faces crushing defeat at Brexit vote last night; 30-year auction in focus

The United Kingdom’s gilts slumped during Wednesday’s afternoon session, after Prime Minister Theresa faced a crushing defeat at the Brexit vote in the Parliament held yesterday by 149 votes (242 vs 391).

On top of all, there is scheduled to be further Brexit activity in the House of Commons today, besides, Chancellor of the Exchequer Phillip Hammond will make his 2019 Spring Statement to the MPs. While the OBR’s economic forecasts seem bound to revise down the outlook for growth, the fiscal outlook is likely to look better than previously thought, Daiwa Capital Markets reported.

The yield on the benchmark 10-year gilts, rose 1-1/2 basis points to 1.180 percent, the super-long 30-year bond yields surged 1-1/2 basis points to 1.704 percent and the yield on the short-term 2-year climbed nearly 2-1/2 basis points to 0.738 percent by 09:45GMT.

After last night’s crushing Brexit defeat for Theresa May by 149 votes (242 vs 391), MPs will today vote with a big majority to rule out the prospect that the UK will leave the EU without a deal at the end of this month.

And while an amendment tabled by backbenchers to rule out the prospect that the UK might leave without a deal at any time in the future might not win a majority this evening, there remains a probability close to zero that a destructive no-deal Brexit might ever take place, Daiwa Capital Markets added in its report.

Similarly, other amendments tabled calling for a second referendum at the end of an article 50 extension, and for legislation to revoke article 50 to be prepared now, are unlikely to win the day today, but might yet emerge at some point in the future as Parliament and Government alike struggle to coalesce around a practical way forward out of the current mess, the report added.

After this evening’s votes, attention in the House of Commons has turned to today’s votes, where MPs will vote in favour of a motion demanding that Theresa May requests for an extension of the Article 50 deadline at next week’s EU summit.

"We fully expect the extension to be granted. The main uncertainty relates to the length of the extension (we attach roughly equal probabilities to an extension of 2-3 months and a longer one of about 21 months)," Daiwa further added in its comments.

Meanwhile, the FTSE 100 remained tad 0.16 percent higher at 7,161.41 by 09:50GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bullish at 96.40 (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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