Bonds: Markets speculate with July cut in Bank Rate

The yield on the benchmark 10-year Gilt dropped below 1.0% for the first time ever on Monday, against the backdrop of a falling pound, as UK investors sought refuge amid the Brexit storm.

Yield on the benchmark 10-year Gilt dropped 13 basis points to 0.96%. Those on 30-year debt issued by the Treasury fell by 11 basis points to 1.82%.

Prices on long-term debt in the US, Germany and Japan were all pushed higher, amid increased bets that the European Central Bank would be forced to contemplate additional easing measures and that the Fed was now effectively out of the game for the remainder of 2016, at the very least.

In the UK too, traders ramped-up bets of further easing by the Bank of England, with markets pricing-in a greater than 50.0% probability of an interest rate cut in July.

Earlier in the day, before the start of trading in London, the Chancellor said the result of the EU referendum would have an impact on the public finances, but the economy was “fundamentally strong”.

He also postponed plans to hold an emergency austerity budget, saying instead the Office of Budgetary Responsibility would assess the economy in the autumn after the ruling Conservative Party had elected a new leader.

Out in the euro area periphery Spain won a reprieve from the post-Brexit sell-off after Spain’s Conservative PP party managed to consolidate its leading position in the country’s parliament, although a majority government might still elude the centre-right party.

Significantly, the leader of the new centre party known as Citizens, Albert Rivera, appeared to open the door to a possible coalition government with the PP.

That was enough to send the yield on the benchmark 10-year Spanish sovereign debt issue lower by 18 basis points, for its biggest single day decline since June 2014, to 1.36%.