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The UK gilts continued to trade higher on Tuesday despite November consumer inflation accelerated at its fastest pace since October 2014.
The yield on the benchmark 10-year gilts fell 3 basis points to 1.43 percent, the super-long 40-year bond yield also dipped 3 basis points to 1.90 percent and the yield on short-term 3-year slid 2 basis points to 0.22 percent by 10:30 GMT.
UK’s annual consumer inflation accelerated to 1.2 percent y/y in November, from previous 0.9 percent y/y, registering its fastest pace of growth since October 2014 and on the back of a 0.2 percent m/m increase.
The core rate is running at an even quicker pace, up at 1.4 percent y/y from 1.2 percent in November. As the headline rate marks a faster rate of increase than the 1.1 percent y/y expected by the market, this should be construed as a Gilt-negative development.
Moreover, markets will remain focused on the Federal Reserve last monetary policy decision for 2016, which is scheduled to be released on December 14. The Federal Reserve is expected to increase the target range of the key interest rate by 25 basis points to 0.50-0.75 percent, with a unanimous decision. Little change to the statement, though the Committee is likely to acknowledge that market-based measures of inflation compensation have risen further.
The Bank of England (BoE) in its latest inflation survey raised 1-year inflation expectations to 2.8 percent, from estimate of 2.2 percent in August, 2-year forecast to 2.5 percent, from an earlier forecast of 2.2 percent, 5-year forecast to 3.1 percent vs prior 3.0 percent. Additionally, the central bank increased 12-months rate rise expectations to 41 percent, from previous expectations of 21 percent.
Meanwhile, the FTSE 100 traded 0.58 percent higher to 6,928 by 11:00 GMT. While at 11:00 GMT, the FxWirePro's Hourly GBP Strength Index stood neutral at +68.67 (higher than +75 represents purely bullish trend).
