BUNDS: Auction Again on Weaker Side

SFIZ5 96.25/96.05/95.85 put fly paper paid 3.25 on 5.5K.

Dovish weekend commentary from BoE Governor Bailey, pointing to the potential for easier BoE policy if the labour market deteriorates quicker than the Bank expects, followed by a softer-than-expected REC Labour market report, has driven front end outperformance.

• Gilt futures have hit fresh session highs in recent trade, after briefly piercing Friday’s low early on. Contract last +10 at 91.79.
• Bears remain in technical control and eye the July 8 low (91.42). Conversely, bulls need to clear the July 10 high (92.19).
• Yields flat to 4bp lower, pre-existing July ranges intact across the curve.
• 2s10s registers the highest level since April, 79.2bp, and is on track to register the highest close of ’25. The April 9 high (84.6bp) provides the next major upside target.
• 5s30s trades back above 140bp, with the ’25 intraday high (147.2bp) providing the next upside area of interest.
• GBP STIRs react dovishly to Bailey’s comments and the subsequent REC release.
• SONIA futures now +0.5 to +6.5, SFIZ5 hit a fresh July high.
• BoE-dated OIS shows ~58bp of cuts through year-end. a reminder that moves through 55bp have failed in recent weeks, but fresh dovish signals from the Bank may make this move more meaningful.
• Inflation & labour market data, as well as the Mansion House event, present the key UK risk events this week. Please read our Global Week Ahead email for more colour on those events and expect our full preview in due course.