U.K gilts flat in thin trade

The U.K gilts traded flat on Tuesday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. The yield on the benchmark 10-year bonds hovered at 1.453 pct and the yield on short-term 2-year bonds remained steady at 0.458 pct by 0955 GMT.

The Bank of England Governor Carney in front of the Treasury Select Committee 24 May 2016 said that the BoE has higher bar in reading current economic data and the European Union referendum creating substantial uncertainty. He further added that Brexit would change trade-off between growth and inflation and the BOE can ultimately achieve monetary stability whether UK is in EU or not. Brexit would lower the probability that next rate move would be up and also pointed that correct response to Brexit isn't necessarily easing, he added.

Moreover, the BOE in its MPC annual report concluded that the UK inflation likely to rise gradually through 2016 and Brexit likely to slow growth and cause weaker pound. The UK vote to Remain may result in rebound and British economic growth has slowed in past year, they noted.

In the latest new U.K public opinion poll released by Opinium over the weekend showed 44 pct of the voters favoured remaining in the EU and 40 pct supported leaving the European Union. However, this is similar to most recent surveys showing a modest balance against Brexit. Moreover, the UK Chancellor of the Exchequer Osborne warned over the weekend that Brexit would cause a year-long recession. UK Treasury in its recent report on Brexit concluded that Brexit could cause the pound index to fall 12-15 pct and push up jobless rate by 520k-820k. Added this catastrophic event will lower real wages by 2.8-4.0 pct and could raise inflation by 2.3-2.7 percentage point. Budget deficit could increase 24-39 billion and a Brexit vote would result in a marked deterioration in the economic security and prosperity, they added further.

In addition, the British gilts 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. Crude oil prices fell on firm global supply, a stronger dollar and surging output from Iran to Europe and Asia. Yesterday, Iranian deputy oil minister quoted that Iran plans to increase oil export capacity to 2.2 million barrels by the summer and has no plans to freeze its level of oil production and export. The International benchmark Brent futures fell 0.85 percent to $47.94 and West Texas Intermediate (WTI) dipped 0.62 percent to $47.78 by 0830 GMT.

Meanwhile, The FTSE 100 rose 0.73 pct or 44.57 points to 6,181 by 0955 GMT.