UK gilt yields drop to one-week low after Johnson Brexit defeat

LONDON, Oct 23 (Reuters) - British 10-year government bond yields sank to their lowest level in a week on Wednesday after parliament blocked Prime Minister Boris Johnson's request to rush through key Brexit legislation before Oct. 31, when he wants to leave the bloc. After Tuesday's parliamentary defeat, Johnson said he would wait for the EU to respond to a request to delay the Brexit date, which Johnson sent to Brussels on Saturday after being forced to do so by lawmakers. U.S. Treasury yields fell on Tuesday after the vote, which increases the chance of a British national election to break the impasse, and British government bond yields followed suit on Wednesday.

Ten-year gilt yields fell to their lowest since

Oct. 16 at 0.654% at 0703 GMT, down more than 5 basis points on

the day, and two-year and five-year yields

also dropped to a one-week low. At 0800 GMT, 10-year yields were 5 basis points down on the day at 0.666%. "Today is all about assessing how the Brexit saga will unfold. In core fixed income markets, yields are likely to drop by another few basis points, given how much optimism had been priced in over the past two weeks," strategists at UniCredit said in a note to clients.

Thirty-year gilt yields touched a 12-week high

on Monday on hopes that a deal was close, which would eliminate the risk of an economically disruptive no-deal Brexit. Figures from the Confederation of British Industry on Tuesday showed that manufacturers were suffering from the highest degree of political uncertainty in decades as well as the worst outlook for exports since 2009.

Short sterling interest rate futures for 2020 rose

1-2 ticks on Wednesday as markets priced in marginally lower Bank of England rates, while another measure priced in an 80% chance of a 25 basis-point cut by the end of 2020.

Dec long gilt future 132.31 (+0.34)Dec 2019 short sterling 99.235 (-0.005)June 2020 short sterling 99.325 (+0.01)10-year gilt yield 0.6666% (-5 bps)

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(Reporting by David Milliken Editing by William Schomberg)