Gilts look for direction after inflation data
The implied cost of borrowing for the United Kingdom declined to 1.08% after the release of inflation data for September, which came out higher than expected at 1% for the year to date. This was followed by a rally in bond prices on 10-year government debt, although they suffered a brief plunge before picking up in the afternoon trade. The rather unexpected development coincides with comments by some market analysts that fears about long-term inflationary pressures in the U.K. have probably been overblown. Under the usual scenario, higher prices in an economy reduce the return on fixed income securities that do not have an in-built inflation protection, and make them less attractive to foreign investors.
The yield on 10-year gilts eased to 1.083% at 1:11 p.m. CET after reaching a daily high of 1.12%. Mirroring the broader sentiment, yields on 10-year German Bunds, a benchmark for the Eurozone, slowed down to 0.04%, while the yields on United States Treasuries of the same maturity fell to 1.76%. Meanwhile, the British pound has been bolstered by higher inflation, rising 0.67% against the euro and 0.72% versus the U.S. dollar at 1:17 p.m. CET.