GILTS: A Little Softer Alongside Modest Hawkish Repricing In Short End
Feb-14 10:37
Gilts are off session lows after increased odds of U.S. tariff implementation on the UK (owing to the use of VAT) weighed at the open.
- Markets seem to favour trading off the risks to inflation posed by the tariffs, although related downside risks to growth (and the potential for the BoE to react dovishly if GDP takes a meaningful hit) may be limiting losses.
- Note there is a window for negotiation, with the tariffs not set to go into play until early April. This may also be limiting the sell off.
- Futures comfortably within yesterday’s range, leaving initial support and resistance (92.31/94.35) untouched, with the bull cycle remaining in play in the contract.
- Yields ~2bp higher in a parallel shift across the curve.
- BoE-dated OIS shows ~56.5bp of cuts through year-end vs. ~57.5bp late yesterday and after briefly showing ~55bp earlier today.
- Expect macro and cross-market cues to continue to dominate on Friday, with little of note on the UK calendar and domestic focus pinned on next week’s labour market and inflation data.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.429 | -2.5 |
May-25 | 4.234 | -22.0 |
Jun-25 | 4.152 | -30.2 |
Aug-25 | 4.002 | -45.2 |
Sep-25 | 3.970 | -48.4 |
Nov-25 | 3.903 | -55.1 |
Dec-25 | 3.890 | -56.4 |
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
GILTS: Outperforming Following CPI, Curve Steepens On Dovish BoE Repricing
Jan-15 10:35
Gilts off morning highs after softer-than-expected CPI data drove a rally at the open.
- Markets ignore the fact that the downside surprise was mostly driven by volatile components.
- The recent increase in short positioning in futures (flagged in recent days) will be contributing to the rally.
- Limited weakness following the 4.25% Jul-34 gilt auction, which generated the lowest cover ratio for an offering of the line since ’23, countered by an average tail (there was risk of a wider tail given recent gilt weakness/vol.).
- Futures +80 at 90.05, range 89.68-90.19.
- Bearish trend in futures intact, although today’s data puts that at risk. Initial support and resistance located at 88.96 and 90.31, respectively.
- Yields 6.5-11bp lower.
- 10s ~25bp off end ’24 highs, ~11bp off early ’25 highs.
- 5s30s on track for a fresh cycle closing high, last 86.4bp.
- 10s spread vs. Bunds ~5.5bp tighter at 218bp, driven by CPI.
- BoE-dated OIS showing 51bp of cuts vs. 36.5bp late yesterday (latter represented a fresh cycle hawkish extreme).
- SONIA futures +2.5 to +11.0.
- Dovish flow seen in SONIA options this morning (covered earlier).
- Comments from BoE dovish dissenter Taylor due this afternoon (16:30 London), with particular focus on his comments in light of the recent market adjustments.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Feb-25 | 4.492 | -20.9 |
Mar-25 | 4.471 | -22.9 |
May-25 | 4.378 | -32.2 |
Jun-25 | 4.338 | -36.2 |
Aug-25 | 4.262 | -43.8 |
Sep-25 | 4.247 | -45.3 |
Nov-25 | 4.206 | -49.4 |
Dec-25 | 4.191 | -50.9 |
GERMAN AUCTION RESULTS: 1.80% Aug-53 Bund / 2.50% Aug-54 Bund
Jan-15 10:34
| 1.80% Aug-53 Bund | 2.50% Aug-54 Bund | |
| ISIN | DE0001102614 | DE000BU2D004 |
| Total sold | E1bln | E1.5bln |
| Allotted | E754mln | E1.19bln |
| Previous | E0.804bln | E0.854bln |
| Avg yield | 2.84% | 2.84% |
| Previous | 2.55% | 2.49% |
| Bid-to-offer | 1.96x | 2.19x |
| Previous | 2.93x | 3.10x |
| Bid-to-cover | 2.59x | 2.76x |
| Previous | 3.65x | 3.63x |
| Avg price | 79.88 | 93.16 |
| Low price | 79.86 | 93.15 |
| Pre-auction mid | 79.835 | 93.092 |
| Prev avg price | 84.80 | 100.23 |
| Prev low price | 84.79 | 100.22 |
| Prev mid-price | 84.744 | 100.105 |
| Previous date | 20-Nov-24 | 16-Oct-24 |
EGB OPTIONS: Bund call fly
Jan-15 10:22
RXH5 132.5/133.5/134 broken call fly, bought for 11 in 2k.
