FX.co ★ UK Gilt Yields Rebound on Strong Retail Sales

UK 10-year gilt yields climbed to 5.25% on Friday, reversing part of the more than 10 bps decline seen in the previous session, as markets absorbed stronger-than-expected retail data and a week of major central bank decisions. August retail sales rose 0.5%, confounding forecasts for a 0.2% drop and rebounding from July’s decline. Department stores led the upturn as earlier stock shortages were resolved, indicating that consumer spending is holding up despite elevated energy costs and the prospect of tighter monetary policy.

On Thursday, the Bank of England left interest rates unchanged and announced it would cease sales of very long-dated gilts under its quantitative tightening programme, while cautioning that a prolonged conflict in the Middle East could necessitate a more restrictive policy stance. The Federal Reserve and the Bank of Japan also raised rates this week and signalled that further tightening remains possible before year-end. Meanwhile, Brent crude extended its decline as worries about potential Saudi supply disruptions subsided.