U.K gilts rise on high Brexit uncertainty

The U.K gilts strengthened on Wednesday as the recent polls showed the outcome of the referendum is too close to call, raising the possibility that Britain might leave the EU after 43 years of membership in the bloc. The yield on the benchmark 10-year bonds fell 2bps to 1.456 pct and the yield on short-term 2-year bonds dipped 1bp to 0.476 pct by 1055 GMT.

In the latest new U.K poll by YouGov shows the public evenly split on Brexit at 41-41 percent. This survey, conducted on 23-24 May, represents a net 4 percent swing against European Union membership since the organisation's poll last week. On Monday, the U.K public opinion poll released by Opinium over the weekend showed 44 percent of the voters favoured remaining in the EU and 40 percent supported leaving the European Union. However, this is similar to most recent surveys showing a modest balance against Brexit. Moreover, the UK Chancellor of the Exchequer Osborne warned over the weekend that Brexit would cause a year-long recession. UK Treasury in its recent report on Brexit concluded that Brexit could cause the pound index to fall 12-15 percent and push up jobless rate by 520k-820k. Added this catastrophic event will lower real wages by 2.8-4.0 percent and could raise inflation by 2.3-2.7 percentage point. Budget deficit could increase 24-39 billion and a Brexit vote would result in a marked deterioration in the economic security and prosperity, they added further.

In addition, the British gilts have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of England's target. Today, Crude oil jumped more than 1 percent and pushed closer to $50 a barrel, hitting its highest in over seven months after industry data suggested a larger-than-expected drawdown in U.S. crude inventories last week. American Petroleum Institute inventory data showed crude oil dropped by 5.14 million barrels. Moreover, gasoline stocks climbed by 3.6 million barrels, while inventories of distillate fuels, including diesel and heating oil, fell by 2.9 million barrels. The International benchmark Brent futures rose 1.38 pct to $49.28 and West Texas Intermediate (WTI) jumped 1.32 pct to $49.26 by 0815 GMT.

Meanwhile, The FTSE 100 rose 0.64 pct or 39.74 points to 6,259 by 1055 GMT on tacking firm crude oil prices.