The UK gilts slumped Friday as crude oil prices rebounded after Saudi Arabia made a proposal to Iran ahead of Algiers OPEC meeting for a production cut.
The yield on the benchmark 10-year gilts, which moves inversely to its price, rose 2 basis points to 0.731 percent, the super-long 40-year bond yield climbed 1 basis point to 1.31 percent and the yield on short-term 5-year bond bounced 2 basis points to 0.102 percent by 09:50 GMT.
According to Reuters, Saudi Arabia made a proposal to Iran ahead of Algiers meeting that it was ready to cut output if the latter agrees to freeze production at current levels of 3.6 million barrel per day. Meanwhile, the International benchmark Brent futures rose 0.88 percent to $48.06 and West Texas Intermediate (WTI) jumped 0.26 percent to $46.44 by 09:50 GMT.
On Thursday, the Bank of England in its Financial Policy Committee report concluded that the financial system has demonstrated resilience to spikes in uncertainty and risk aversion. Core financial markets functioned effectively despite initial sharp price moves and particularly high volumes of transactions relative to normal levels in some markets. Bank funding conditions remained broadly stable.
Heightened uncertainty about the near-term macroeconomic outlook and the United Kingdom's future relationship with the EU is reinforcing domestic risks. In the UK commercial real estate market, the risks of a sharp adjustment are crystallising. Prices have fallen and transactions are at their lowest level since 2009.
Although the sharp fall in the sterling exchange rate will help to smooth the adjustment of the current account over time, the risk remains of a fall in overseas investors' appetite to invest in the United Kingdom. Any disorderly adjustment in capital flows would be associated with tighter funding conditions for the UK real economy
The FPC remains concerned that the ability of some households to service their debts would be challenged by a period of weaker employment and income growth. These vulnerable households could affect broader economic activity by cutting back sharply on expenditure in order to service debts.
Meanwhile, the FTSE 100 traded 0.06 percent lower at 6,906.90 by 09:50 GMT.
