The UK gilts traded nearly flat Monday, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance.
The yield on the benchmark 10-year gilts, which moves inversely to its price, hovered around 1.44 percent, the super-long 40-year bond yield climbed 1 basis point to 1.90 percent and the yield on short-term 2-year remained steady at 0.13 percent by 10:00 GMT.
The British gilts have been closely following developments in oil markets because of their impact on inflation expectations, which is well below the Bank of England's target. Crude oil prices jumped as investors expect tighter crude oil market in 2017. The International benchmark Brent futures rose 0.36 percent to $55.38 and West Texas Intermediate (WTI) climbed 0.52 percent to $52.17 by 10:00 GMT.
Last week, the tone of the December UK BoE MPC meeting minutes maintains a slightly hawkish hue, with the members repeating that there are limits to the degree to which above-target inflation will be tolerated. They see inflation rising to 2 percent within the next six months and add that monetary policy can react in either direction to variations in the economic outlook.
As such they stress they will continue monitoring closely the developments in inflation expectations. Governor Mark Carney also adds that the BoE will take whatever action is imperative to ensure that inflation expectations remain well anchored.
Moreover, the Federal Open Market Committee increased the fed funds rate to a 0.50-0.75 percent range last Wednesday, as widely expected. The statement noted that information received since the November meeting indicates that the labour market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.
Also, the new projections showed that the central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.
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.
Lastly, markets will remain keen to focus on the upcoming economic data and events, highlighted by GfK consumer confidence, business investments, current account and Q3 GDP data.
Meanwhile, the FTSE 100 traded 0.12 percent lower to 7,002 by 10:00 GMT. While at 10:00 GMT, the FxWirePro's Hourly GBP Strength Index remained slightly bearish at -79.92 (lower than -75 represents purely a bearish trend).
