UK gilts plunge as inflation outlook revives after OPEC deal

The UK gilts plunged Thursday as country’s inflation outlook is expected to revive after a deal by the OPEC to cut production for the first time in nine years, renewing hopes of higher energy costs.

The yield on the benchmark 10-year gilts, which moves inversely to its price, rose 5-1/2 basis points to 0.733 percent, the super-long 40-year bond yield climbed 6 basis points to 1.347 percent and the yield on short-term 2-year bond bounced 1-1/2 basis points to 0.093 percent by 10:40 GMT.

After Wednesday's informal OPEC meeting in Algeria resulted in a preliminary agreement, unexpectedly, to cut production (to 32.5-33m bpd), the front-month WTI future rose by about $2 to about $47.00, a 3-week high, which it has largely sustained so far today. Now the focus will be on the official meeting in Vienna on November 20.

This is the first agreement to cut production since the market crashed in 2014 following a supply glut. The International benchmark Brent futures rose 4 percent to $49.06 and West Texas Intermediate (WTI) also bounced 4 percent to $47 from the yesterday’s closing session.

In terms of recent economic data, UK mortgage approvals for August slipped to 60.1k, which is close to expectations after 60.9k previously. This is the lowest since November 2014 and is consistent with a post-referendum slowing of housing market activity.

Additionally, net mortgage lending rose unexpectedly, though, to 2.9 billion pounds from 2.6 billion pounds. Also reported by the BoE, M4 money supply accelerated to 5.4 percent y/y, whereas adjusted for financial-sector interventions it decelerated to 10.9 percent from 14.7 percent on a 3-months annualised basis.

Lastly, investors remained keen to focus on the series of upcoming economic data, highlighted by HPI, business investment and Q2 GDP data.

Meanwhile, the FTSE 100 traded 0.97 percent higher at 6,915.70 by 10:40 GMT.