UK gilts strengthen on higher risk appetite, disappointing fiscal coffers

The UK gilts strengthened Monday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil. Also, disappointing fiscal coffers in July encouraged investors for safe-haven buying.

The yield on the benchmark 10-year gilts fell 3-1/2 basis points to 0.586 percent, the super-long 40-year bond yield dipped 3 basis points to 1.205 percent and the yield on short-long 2-year bond slid 2-1/2 basis points to 0.134 percent by 09:40 GMT.

The UK fiscal coffers disappointed investors in July, with the headline PSNB ex-banks figure turning out at a surplus of a smidgen under 1.0 billion pounds, against 1.6 billion pounds surplus predicted by the market consensus, and contrasts with a 1.17 billion pounds surplus in July 2015.

Moreover, the latest reading is also made worse by the upward revision to the Jun deficit to 8.0 billion pounds from a previous reading of a 7.8 billion pounds gap. So the cumulative deficit for the April-July period works out at 23.7 billion pounds, which is down 11.3 percent from the same period in 2015,

Looking ahead, we foresee that this latest developments has created an opportunity to go long as the outcome is construed as more supportive for gilts.

In addition, the British government 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.

The crude oil prices declined more than 1 percent as Iraq prepared to increase its exports and renewed concerns that upcoming producer talks will not rein in oversupply. The International benchmark Brent futures fell 1.91 percent to $49.90 and West Texas Intermediate (WTI) dipped 1.50 percent to $47.79 by 09:20 GMT.

Lastly, investors will remain keen to focus on the upcoming second quarter gross domestic product GDP figure.

Meanwhile, the FTSE 100 traded 0.35 percent lower at 6,834.30 by 09:50 GMT.