U.K Gilts gain on weak construction PMI amid Brexit angst

The U.K government bonds strengthened Wednesday after the data showed weaker-than-expected construction PMI figure amid rising worries among investors about the up-coming June referendum. Also, tumbling crude oil prices drove investors towards safe-haven assets. The yield on the benchmark 10-year bonds, which moves inversely to its price, moved lower 0.72 pct to 1.520 pct and the yield on the 2-year bonds dipped 2.06 pct to 0.475 pct by 0955 GMT.

The United Kingdom April construction PMI declined to 52 (nearly 3-year low), against market expectation of 54, from 54.2 in March. Moreover, the British bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of England's target. Today, crude oil prices tumbled on concerns that slowing demand and rising Middle East production would extend a global supply overhang. The United States crude inventories rose by 1.3 million barrels in the week to April 29 to 539.7 million barrels, according to data from the American Petroleum Institute, which further weakened the investor sentiments. Also, Iraq said that its oil shipments from southern fields averaged 3.364 million barrels per day in April, up from 3.286 million in March and production from top exporter Saudi Arabia was 10.15 million barrels per day in April. The International benchmark Brent futures fell to $44.97, from yesterdays $45.56 and West Texas Intermediate (WTI) declined to $ 43.72, against yesterdays $44.40.

"Softer growth forecasts for the UK economy alongside uncertainty ahead of the EU referendum appear to have provided reasons for clients to delay major spending decisions until the fog has lifted," notes Tim Moore from Markit in a press release on Wednesday.

In a new EU referendum poll by ICM published in the Sunday Sun, the Brexit side leads by 46 pct to 43 pct and remaining 11 pct are still undecided. While 45 pct said that immigration in United Kingdom is the biggest factor in the vote. Meanwhile, The FTSE 100 fell 1.29 pct or 79.59 points to 6,106 by 0955 GMT.