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The UK gilts slumped Tuesday after reading the country’s higher-than-expected consumer price inflation for the month of May. Also, the employment report for the month of April, due on June 14 will provide further direction to the debt market.
The yield on the benchmark 10-year gilts, jumped 5 basis points to 1.02 percent, the super-long 30-year bond yields surged nearly 5-1/2 basis points to 1.72 percent and the yield on the short-term 2-year traded nearly 6 basis points higher at 0.14 percent by 10:10 GMT.
UK CPI inflation continued its ascent in May, to reach an annual rate of 2.9 percent, up from 2.7 percent in April. The outturn, exceeding the consensus expectations of 2.7 percent was the highest since June 2013. The CPI ‘core’ rate (excluding energy, food, alcohol and tobacco) also surged, reaching 2.6 percent in May, from 2.4 percent in April, again.
The rise in May CPI provided further evidence of the continued impact of last year’s sterling depreciation, with much of the impact from these coming from those components of the CPI that are more sensitive to movements in the exchange rate. The surge in May inflation now leaves inflation above the Bank of England’s assumed peak of around 2.8 percent y/y, which was not expected until Q4 of this year.
"We expect the upward push from a weaker sterling and the remainder of the hikes in domestic energy tariffs announced so far will continue to impart clear upward pressure to inflation. For some time our expectation has been that inflation would rise more sharply than that expected by the BoE, peaking above 3 percent later this year," Lloyds Bank commented in its latest research report.
Meanwhile, the FTSE 100 traded 0.03 percent or 2.62 points lower at 7,509.00 by 11:10 GMT, while at 11:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at -30.26 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
