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Bonds: Gilts brush off larger than expected rise in CPI

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Bonds: Gilts brush off larger than expected rise in CPI

Tue, 16 May 2017
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Bonds: Gilts brush off larger than expected rise in CPI

(ShareCast News) - These were the movements in some of the most widely-followed 10-year sovereign bond yields:

US: 2.33% (-1bp)UK: 1.13% (-1bp)Germany: 0.44% (+2bp)France: 0.89% (+1bp)Spain: 1.63% (0bp)Italy: 2.24% (-4bp)Portugal: 3.30% (-8bp)Greece: 5.71% (+4bp)Japan: 0.05% (+0bp)


Longer-term Gilts bounced back from the previous session's thrashing despite the release of what at first glance appeared to be a much stronger-than-expected reading on UK consumer prices, amid the backdrop of the negative headline swirling around the White House.

British CPI advanced at a 2.7% year-on-year clip in April, up from 2.3% in March and leaving economists expecting an acceleration to 2.5% flat-footed.

Core prices also strengthened, rising by 2.4% versus a 1.8% gain in March (consensus: 2.2%).

Nonetheless, for the most part traders appeared convinced that Tuesday's figures would not ellicit a reaction from the Old Lady on Threadneedle Street.

Backing up that view perhaps, economists at Barclays said services prices appeared to be losing momentum.

Helping to dampen any reaction in Gilts, data out earlier in the session from ONS revealed that UK home prices fell by 0.6% on the month in April, their largest drop since 2011.

To take note of as well, independent strategist Ashraf Laidi pointed out how the yield spread between bunds and US Treasuries at the 10-year tenor had crossed its 200-day moving average to the upside, that, he said, was the trigger behind the drop in the US dollar.

In the background, reports overnight from the US alleged president Donald Trump improperly shared intelligence linked to a potential Isis plot against airlines with visiting Russian diplomats.

That coincided with the release of another batch of mixed reports on the US economy on Tuesday.

Data from the US central bank showed industrial production shot ahead by 1.0% month-on-month in April (consensus: 0.4%), even as figures on housing starts and permits for the same month undershot analysts' forecasts by a wide margin.

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