UK gilts plunge on investor optimism from new Brexit deal, clearing path to end ties with EU

The United Kingdom’s gilts plunged during European trading hours Thursday tracking an array of optimism from market participants after Britain and the European Union reached a deal on Brexit, which further cleared the pathway to end all official ties with the latter after over 4 decades.

The yield on the benchmark 10-year gilts, jumped 3 basis points to 0.746 percent, the 30-year yield surged 4 basis points to 1.228 percent and the yield on the short-term 2-year traded tad higher at 0.569 percent by 12:10GMT.

The headline rate of annual UK CPI inflation held steady in September, printing at 1.7 percent, against consensus expectations for a modest pickup to 1.8 percent. That the headline rate of CPI failed to move higher last month, despite an uptick in the ‘core’ rate of CPI, which rose to 1.7 percent y/y from 1.5 percent in August, suggests that all of the downside surprise was due to softer-than-expected prices for food, drinks and energy-related goods and services.

Prices in these areas of the inflation basket are viewed as being more volatile and hence movements in these should be treated with caution. Nevertheless, and perhaps more crucially, the headline rate of CPI stayed below the key 2 percent mark for a second consecutive month, providing little justification for policymakers to consider hiking interest rates anytime soon.

Meanwhile, the FTSE 100 remained tad -0.39 percent down at 7,185.25 by 12:15GMT.