UK gilts plummet on expectations of rise in rise in August CPI, upbeat employment report

The UK gilts plummeted Monday on hopes of a rise in the country’s consumer price inflation index (CPI) for the month of August amid an encouraging employment report for July, although unemployment rate is seen remaining unchanged at 4.4 percent for July.

The yield on the benchmark 10-year gilts, jumped 3-1/2 basis points to 1.03 percent, the super-long 30-year bond yields also climbed nearly 3-1/2 basis points to 1.68 percent and the yield on the short-term 2-year too traded 3-1/2 basis points higher at 0.20 percent by 10:45 GMT.

On the data front, the latest inflation figures are due tomorrow. Having risen particularly rapidly in previous months to reach 2.9 percent y/y in May, headline CPI inflation was stable at 2.6 percent y/y in June and July. A small increase in August is expected to be seen to 2.7 percent y/y, but that is likely to be driven mainly by higher energy prices as the core rate should remain unchanged at 2.4 percent y/y.

Further, labour market data, due on Wednesday, are unlikely to show any material changes to major indicators. Employment is set have remained firm in July, likely rising by more than the 125k3M/3M rate reported in June, while the unemployment rate is likely to be unchanged at the lowest level since 1975 at 4.4 percent. Among other data, on Thursday the RICS will release its latest Residential Market survey.

Meanwhile, the FTSE 100 traded 0.58 percent higher at 7,420.00 by 10:50 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bullish at 86.54 (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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