UK 10-year gilt yields hit highest in 6 months following weakness in U.S. Treasuries

The UK 10-year gilt yields hit highest in 6 months Friday as investors moved away from safe-haven buying amid global debt sell-off. The global debt sell-off was supported by the rising expectations that U.S. President-elect Donald Trump's policies, such as fiscal expansion and protectionism on international trade, could support growth and inflation.

The yield on the benchmark 10-year gilts, which moves inversely to its price, rose 4 basis points to 1.381 percent, the super-long 40-year bond yield jumped 3 basis points to 1.862 percent and the yield on short-term 2-year bounced 1-1/2 basis points to 0.243 percent by 09:50 GMT.

The UK bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield rose 8 basis points to the highest in 2016 of 2.138 percent on expectations that U.S. President-elect Donald Trump's policies, such as fiscal expansion and protectionism on international trade, could support growth and inflation.

On Wednesday, the United States Republican candidate Donald Trump pinned his victory against Democrat opponent Hillary Clinton in the 2016 presidential election. Also, Trump has indicated that he would increase fiscal spending and adopt more protectionist trade policies that could support growth and inflation.

Investors revised the outlook for US interest rates after Donald Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 80 percent.

Moreover, initial jobless claims in the United States fell during the week ended November 5, from almost a three-month high in the run-up to the country’s most impactful Presidential election concluded Nov 8, with the results being declared on the following day. Also, the fall in the number of people opting for unemployment benefits has strengthened the probability of a December interest rate hike by the Federal Reserve.

U.S.’s jobless claims fell by 11,000 to 254,000 in the week ended November 5, data released by the Labor Department report showed Thursday in Washington. The median forecast in a Bloomberg survey called for 260,000. Continuing claims rose, though the four-week average dropped to the lowest since 2000.

In addition, the Bank of England (BoE) left monetary policy unchanged at the November meeting that concluded on last Thursday, maintaining a more hawkish tone than what was anticipated by market participants. The board shifted from an easing bias to a neutral bias, saying that it "can respond in either direction".

Economic data has remained remarkably resilient to the Brexit uncertainties while the steep GBP depreciation means that CPI inflation will increase sharply next year. It seems that the BoE is quite satisfied that its actions have supported the economy and moved inflation back to higher levels consistent with the 2 percent target.

The BoE now expects higher short-term real GDP growth as economic data so far has been resilient. The bank also expects CPI inflation to be higher than the August projections as the GBP has depreciated further. The BoE expects CPI inflation to peak just below 3 percent in the coming years.

Meanwhile, the FTSE 100 traded 0.88 percent lower at 6,768.50 by 09:50 GMT. While at 09:00 GMT, the FxWirePro's Hourly GBP Strength Index stood highly bullish at 174.026 (higher than 100 represents purely bullish trend).