UK gilts strengthen on lower risk appetite; Q2 GDP finds minimal market reaction

The UK gilts strengthened Friday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil. Also, ongoing banking crises in Europe encouraged traders for safe-haven buying.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell more than 2 basis points to 0.699 percent, the super-long 40-year bond yield dipped more than 1 basis point to 1.317 percent and the yield on short-term 3-year bond slid 1/2 basis point to 0.085 percent by 10:10 GMT.

The UK gilts 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 dropped as investors cashed in profit after relishing 7 percent of gain in the past two sessions after OPEC confirmed that the group has struck a deal to lower crude output at its policy meeting in November. The International benchmark Brent futures fell 1.45 percent to $49.09 and West Texas Intermediate (WTI) also tumbled 1.34 percent to $47.19 at 09:40 GMT.

Moreover, Deutsche Bank AG shares slid to a record in the U.S. as Bloomberg News reported that some hedge funds have reduced their exposure to the company. Fellow German lender Commerzbank AG said Thursday it would cut one in five of its employees and suspend dividend payments. Meanwhile, shares of Deutsche Bank fell 7 percent and rival German lender Commerzbank shares dipped 6.5 percent after announcing job cuts.

In addition, markets did not react to the second quarter gross domestic product (GDP) figures as data is dated pre-referendum, it is of relatively little relevance now in any case. However, the final Q2 GDP was revised up unexpectedly on a quarterly basis by 0.1 percentage point to 0.7 percent q/q, but revised down on an year-over-year basis by 0.1 percentage point to 2.1 percent y/y.

Meanwhile, the FTSE 100 traded 1.21 percent lower at 6,835 by 10:10 GMT.