UK gilts plummet on context of Brexit uncertainties as deadline nears; PM May likely to survive no-confidence vote

The United Kingdom’s gilts suffered during Wednesday’s afternoon session, as uncertainties hover around Brexit, following the massive defeat that Prime Minister Theresa May faced yesterday at the British Parliament. However, she is expected to survive the no-confidence vote triggered by opposition Labour Party leader Corbyn, scheduled for today at 7:00GMT.

Further, Britain’s fall in December consumer price inflation (CPI) data to 2.1 percent  y/y, from prior 2.3 percent y/y, failed to cap downside in debt prices. Investors will also keep an eye on the country’s retail sales data for the similar month amid Brexit disturbances.

The yield on the benchmark 10-year gilts, jumped 6 basis points to 1.318 percent, the super-long 30-year bond yields surged 5 basis points to 1.830 percent and the yield on the short-term 2-year traded 4-1/2 basis points higher at 0.841 percent by 09:50GMT.

Before yesterday’s vote, May will have hoped simply to be able to resume talks with the EU to seek further concessions in the hope of eventually achieving a Parliamentary majority in favour of a slightly modified deal at a future date.

But given the magnitude of defeat, further negotiations with the EU simply to tinker with her deal will now be considered pointless. Certainly, the EU will rightly consider it unfeasible for May to overturn such a large majority against her deal at a second attempt. And so, right now, the prospects for May’s negotiated settlement look bleak, Daiwa Capital Markets reported.

"Whatever happens, there is certainly no chance of Parliament endorsing a Brexit deal and adopting all of the necessary legislation in time for the UK to leave the EU by end-March. Nevertheless, with a majority of MPs determined to avoid a no-deal Brexit, and May also likely to be keen to avoid completely trashing the UK economy, we expect Brexit eventually to be postponed via an extension of the Article 50 notice. That would also likely require a constructive proposal to break the current deadlock on future policy, and so we expect several weeks of uncertainty to persist before that is achieved. But given our expectation of an extension of the Article 50 process, we also still expect a ‘no deal’ Brexit to be avoided," the report added.

Meanwhile, the FTSE 100 fell 0.58 percent to 6,855.97 by 09:55GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bullish at 120.30 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex