UK gilts strengthen following gains in U.S. Treasuries

The UK gilts strengthened Thursday, following gains in U.S. Treasuries amid stronger demand in the 5-year note auction and weak equities.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell 6-1/2 basis points to 1.23 percent, the super-long 40-year bond yield dipped 6 basis points to 1.68 percent and the yield on short-term 3-year slid 2 basis points to 0.09 percent by 10:10 GMT.

The British gilts have been closely following developments in the U.S. debt market. The benchmark 10-year bonds witnessed strong buying in the 5-year auction, dragging yields by 10 basis points to 2.47 percent.

Also, safe-haven asset prices were supported by strong auction demand of 5-year note. The USD34 billion 5-year note auction came in at 2.057 percent (5.64 percent award at high) with a bid-to-cover ratio of 2.72, non-comps of USD50.9 million, an indirect bid of 71.4 percent and a direct bid of 4.1 percent.

Also, the U.S. equities moved downwards with the Dow index declining -111.36 points or -0.56 percent to 19,833.68. Meanwhile, the S&P 500 index was down -18.96 points or -0.84 percent to 2,249.92.

On Wednesday, the British Bankers Association reports mentioned that the UK’s new mortgage loans for November slipped to 40.7k from previous up 40.8k, undershooting expectations for a rise.

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 traded 0.07 percent lower at 7,100 by 10:10 GMT. While at 10:00 GMT, the FxWirePro's Hourly GBP Strength Index remained highly bearish for second straight day at -124.33 (lower than -75 represents purely a bearish trend).