UK gilts plunge as manufacturing PMI rebounds far more sharply beating market expectations

The UK gilts plunged Thursday after recent data showed that manufacturing PMI rebounded higher than expected in August.

The yield on the benchmark 10-year gilts, which moves inversely to its price, rose 5 basis points to 0.692 percent, the super-long 40-year bond yield climbed 4 basis points to 1.173 percent and the yield on 5-year bond bounced more than 1 basis point to 0.228 percent by 10:40 GMT.

The UK manufacturing sector PMI rebounds far more sharply than market envisaged, soaring straight back into bona fide expansion territory, of 53.3, from a revised contractionary reading of 48.3 (previous was 48.2), and vs 49.0 expected by the market consensus.

This is the highest print since October 2015 and it is evident that the weak GBP is helping to shore up foreign demand for UK exports, with the survey showing a surge in the export orders sub-index to 54.9, its highest since June 2014, from 51.4 in July.

Confidence is also likely to have been supported by the BoE's sledgehammer monetary easing measures implemented in early-Aug. If the PMI increase is sustained, this suggests that the manufacturing sector might not slide into recession in the short-term and the BoE might refrain from implementing additional stimulus measures in November.

On Wednesday, the United Kingdom August GfK consumer confidence improved to -7, better than the market expectations of -8 fall, from down -12 in July. However, at -7, it's the second lowest in more than 2 years. On the other hand, Lloyds Business Barometer fell to 16 in August, a 5 year low, from 29 in July.

Additionally, the latest house price survey from the Nationwide that surprised on the upside with a rise of 0.6 percent m/m (5.6 percent y/y) in August, against market expectations for -0.3 percent (+4.8 percent y/y).

Lastly, investors will remain keen to focus on the next week's ECB meeting, when there is a chance of another small deposit rate cut.

Meanwhile, the FTSE 100 traded 0.07 percent higher at 6,786.20 by 10:50 GMT.