UK gilts gain ahead of 10-year auction, July construction PMI

The UK gilts gained Monday as investors wait to watch the 10-year auction, scheduled to be held on August 1 and the country’s construction PMI, for the month of July, due on August 2, will provide further direction to the debt market.

The yield on the benchmark 10-year gilts, slipped nearly 1 basis point to 1.21 percent, the super-long 30-year bond yields slumped nearly 2 basis points to 1.84 percent and the yield on the short-term 2-year traded almost flat at 0.24 percent by 10:00 GMT.

Monetary policy will be back in focus this week, with the BoE’s latest decision and publication of the latest Inflation Report. Preliminary Q2 GDP figures showed that growth last quarter was weaker than the BoE had expected, and the latest inflation figures also surprised on the downside.

So despite the fact that some MPC members – most notably, BoE chief economist Haldane – have made same hawkish comments recently, we expect that six MPC members, including Silvana Tenreyro who will be attending her first meeting, will vote to keep policy unchanged, while two – McCafferty and Saunders – will continue to favour tighter policy. Meanwhile, the updated BoE forecasts are likely to show a weaker GDP growth profile.

And it will be interesting to see how the BoE characterises its labour market assessment, given that the unemployment rate has now fallen to 4.5 percent but there has been no pick up in wage growth despite the BoE having previously estimated that this is a level which should generate faster wage growth.

Meanwhile, the FTSE 100 slipped 0.34 percent to 7,393.50 by 10:10 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 37.98 (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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