UK Gilt Spread Betting Markets Trade Below Key Resistance
This morning’s worse than expected trade figures have seen 10 year gilt prices slip back slightly away from their recent 12 month highs around 120.80.
This is probably down to last months figures being adversely affected by the disruption caused by the volcanic ash cloud, and the flight ban across Europe.
Investors would have been looking for net exports to improve given recent Sterling weakness; however the flight ban in the UK last month will have made any evidence of any improvement in UK exports difficult to spot.
The low value of sterling has been used as a prerequisite for improved growth prospects on the back of increased exports. Unfortunately these figures don’t offer any comfort on that score.
As a result gilt prices have slipped back and yields pushed up, but the recent strength in gilt prices since the election is reflected by renewed investor confidence and some safe-haven buying from the troubles in the European bond markets.
The new coalition government is also enjoying somewhat of a honeymoon period with the markets having made all the right noises regarding the deficit as well as the implementation of the initial £6bn worth of cuts, which has played out well with the markets. This saw gilt prices break through the down trend line from the 2009 highs at 125.58.
Yesterday’s comments by Fitch ratings, while impacting Sterling negatively, barely impacted gilt prices. In fact they rose whilst yields dropped.
The comments by Fitch didn’t really add anything positive to the debate and also didn’t really talk about anything that most savvy investors weren’t already aware of.
The forthcoming budget on the 22nd June will be the next key test for the new government and gilt prices which appear to have found a short term ceiling around 120.80. The recent lows at 113.34 equate to a yield of 4.3% while the 120.80 level equates to a 3.497% yield.
A break through the highs at 120.80 would signal increased confidence in the UK’s ability to deal with its debt and send yields down towards 3.4%, which in turn would make it easier to fund further borrowing at much lower rates.
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'UK Gilt Spread Betting Markets Trade Below Key Resistance', Feature by D. Jones, last update: 9-Jun-10
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