UK gilts surge after December consumer price inflation drops, meets expectations

The UK gilts surged Tuesday after the country’s consumer price-led inflation index for the month of December dropped, albeit meeting market expectations for the same. The focus will now turn to the 5-year auction, scheduled to be held on January 18 for further direction to the debt market.

The yield on the benchmark 10-year gilts, slumped nearly 2-1/2 basis points to 1.30 percent, the super-long 30-year bond yields slid 1-1/2 basis points to 1.80 percent and the yield on the short-term 2-year fell 1/2 basis point to 0.58 percent by 09:55GMT.

U.K. inflation eased for the first time in six months in December, thanks to the cost of airfares as well as games and toys. The decline took the rate to 3 percent from 3.1 percent in November, which was the fastest in more than five years. A core measure of consumer-price growth slipped to a five-month low of 2.5 percent.

The decline in December was largely driven by a technical reweighting of airfares in the inflation basket. The Office for National Statistics said it’s too early to say if the move is the “start of any longer-term reduction in the rate.” Services inflation slowed to 2.5 percent in December, the weakest in nine months.

Meanwhile, the FTSE 100 traded 0.23 percent higher at 7,786.75 by 10:00 GMT, and the FxWirePro's Hourly Pound Strength Index remained neutral at 48.86 (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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