UK gilts sag on higher risk appetite; 10-year auction, BoE Carney’s speech in focus

The UK gilts slumped Tuesday as investors moved away from safe-haven buying amid gains in riskier assets including crude oil and equities, with the benchmark FTSE 100 index touching yet another record-high amid losses in pound, following Brexit worries.

Also, markets are eyeing the 10-year note auction and Bank of England Governor Mark Joseph Carney’s speech scheduled to be held on January 12.

The yield on the benchmark 10-year gilts, which moves inversely to its price, rose 1 basis point to 1.34 percent, the super-long 30-year bond yield climbed 1 basis point to 1.99 percent and the yield on short-term 2-year moved 1-1/2 basis points higher to 0.19 percent by 10:15 GMT.

The British gilts bonds 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. Crude oil prices recovered following upbeat sentiment over news that Iraq will cut oil production by 160,000 bpd for OPEC deal terms. Further, the country hopes to reach OPEC-agreed level of 210,000 bpd by end –January.

The International benchmark Brent futures rose 0.53 percent to USD55.23 and West Texas Intermediate (WTI) pushed higher 0.52 percent to USD52.23 by 10:20 GMT.

Moreover, the UK’s services PMI for December unexpectedly rose to 56.2 from 55.2, confounding expectations of a drop to 54.7. This is the third consecutive monthly rise and is the highest since July 2015. Following the strong manufacturing reading reported two days ago, this also takes the Composite PMI up for a fifth consecutive month to 56.7, also a 1-1/2-year high.

Lastly, according to the latest Citi/YouGov survey, UK’s inflation expectations for the short term are broadly steady at 2.4 percent whilst expectations for the longer term have risen to 3.0 percent up from 2.8 percent in November.

Meanwhile, the FTSE 100 hit record high of 7,246.50 by 10:25 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at -21.36 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex