UK gilts mixed on stronger industrial output, manufacturing production shrinks

The UK gilts traded narrowly mixed Tuesday after data showed that the country’s industrial output remained strong in June, while manufacturing production took a downturn.

The yield on the benchmark 10-year gilts fell 1 basis point to 0.605 percent, the yield on super-long 40-year bond also dipped 1 basis point to 1.290 percent and the yield on short-long 2-year bond bounced 1-1/2 basis points to 0.121 percent by 10:10 GMT.

The British industrial output rose 0.1 percent m/m in June, in line with market consensus of 0.1 percent m/m, down from 0.6 percent in May. On an annual basis, it increased 1.6 percent y/y, from previous 1.4 percent.

On the other hand, manufacturing production declined 0.3 percent m/m in June, slightly worse than expected at -0.2 percent m/m, after a downwardly revised -0.6 percent m/m in May, and a widening of the June goods trade balance to a worse-than-expected -12.4 billion pounds, after a revised gap of -11.5 billion pounds in May, should be seen as additional supported factors for gilts today.

Last week, the central bank’s MPC meeting decided a 0.25 percent (25 basis points) cut of bank rate to a record low of 0.25 percent, from 0.5 percent previously. This was first such move since March 2009.

It also declared to resume quantitative easing (QE) by an additional 60 billion pounds of gilt and top-tier corporate bond purchases of 10 billion pounds, which shall be financed via reserves issuance.

However, the bank rate cut was widely expected, but the quantitative easing was not so extensively expected and nor was the forward guidance of the possibility of a further rate cut to bring it to close to zero during the rest of the year.

Meanwhile, the FTSE 100 traded 0.33 percent higher at 6,831.5 by 10:20 GMT.