UK gilts retain gains post Q3 GDP data; weak energy prices dominate market movements

The UK gilts continued to trade firmer Friday as the country’s gross domestic product (GDP) data remained unchanged in the third quarter, failing to provide any direction. Also, weak crude oil prices drove investors toward safe-haven buying.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell 1-1/2 basis points to 1.42 percent, the super-long 30-year bond yield dipped 1 basis point to 2.06 percent and the yield on short-term 2-year slid 1 basis point to 0.13 percent by 10:10 GMT.

We continue to hold our forecast that the 10-year gilt yield will increase towards 1.50 percent multi-day and then 1.60 percent.

The second estimate of the third quarter UK GDP is left intact at 0.5 percent q/q, which is as widely expected, but the interesting feature is the expenditure-based breakdown which shows a whopping 0.7 percentage points contribution to growth from net exports was what propelled growth higher last quarter.

The British gilts have been closely following developments in oil markets because of their impact on inflation expectations, which is below the target level of Bank of England. Crude oil prices fell on investors cashed in profit ahead of next week’s OPEC meeting. Also, strengthening U.S. dollar lent support. The International benchmark Brent futures fell 0.90 percent to $48.60 and West Texas Intermediate (WTI) dipped 0.81 percent to $47.57 by 09:20 GMT.

Also, the British Prime Minister May commented on Tuesday that she wants to cut corporation tax to the lowest among the world’s 20 largest economies and could cut tax to lower than 15 percent.

Meanwhile, the FTSE 100 traded flat at 6,827 by 10:10 GMT. While at 11:00 GMT, the FxWirePro's Hourly GBP Strength Index remained highly bullish for second straight day at +116.04 (higher than +75 represents purely bullish trend).