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UK bonds head for biggest daily jump in 6 weeks on parliament suspension plan

David Milliken

LONDON, Aug 28 (Reuters) - British government bonds headed for their biggest one-day gains in six weeks on Wednesday after Prime Minister Boris Johnson moved to limit parliament's ability to delay Brexit by reducing how long it will sit before the EU exit day on Oct. 31.

Benchmark 10-year gilt yields dropped more than

5 basis points on the day to 0.45%, representing the largest

daily price rise since July 17. Five-year yields came

within a whisker of their lowest levels since October 2016 at 0.284%. Johnson said he would set Oct. 14 for the formal state opening of a new session of parliament that is preceded by a suspension of the House of Commons - effectively shutting parliament for around a month from mid-September. "The main implication is that this will make the legislative path to blocking a 'no-deal' Brexit much harder," ING economist James Smith said. At times of political and economic turbulence, British government bonds attract investors who are seeking a safer home for their money than equities, despite offering historically low yields in many cases.

The benchmark two-year gilt yield touched its

lowest since September 2017 at 0.331%, down 4 basis points on the day - though the underlying gilt which became the benchmark on Tuesday only matched a previous two-year low.

September gilt futures struck a contract high of

135.74, up 69 ticks on the day. Ten-year yields struck an all-time low of 0.405% on Aug. 15, though they have since lifted after markets scaled back expectations of further interest rate cuts by the U.S. Federal Reserve. Investors moved on Wednesday to price in a greater chance of an interest rate cut by the Bank of England. Interest rate futures point to a more than 90% chance of a 25 basis-point cut in Bank Rate before BoE Governor Mark Carney's term ends next January. The BoE has said previously that this type of pricing reflects potentially misplaced market expectations of more than one rate cut in the event of a no-deal Brexit, whereas it is possible it could keep rates steady or even raise them.

Sept long gilt future 135.68 (+0.63)Dec 2019 short sterling 99.32 (+0.025)10-year gilt yield 0.445% (-6 bps)

-------------------KEY MARKET DATA---------------------------

Long Gilt futures Gilt benchmark chainShort Stg futures Cash market quotesDeposit rates Sterling cross rates

UK debt speedguide

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Gilts SterlingEuro Debt DollarU.S. Treasuries Debt reports--------------------GILT STRIPS DATA -------------------------Gilt strips data All gilt stripsGilt strips IO Gilt strips PO

(Reporting by David Milliken, Editing by Andy Bruce and Stephen Powell)

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