POLAND: Average Gross Wages, PPI Below Expectations in August

The combination of fiscal uncertainty, sticky inflation and a split MPC continues to put upward pressure on Gilt yields. Yields are 1-1.5bps higher across the curve today, building on yesterday's price action. 10-year yields are currently 4.75%, with key resistance at the 4.80% handle. 

• Since the start of 2024, the rise in nominal yields has been driven by the real yield component, with inflation breakevens softening gradually alongside spot inflation. With the UK growth outlook still relatively subdued, this is indicative of a rise in term premium -  a theme that is present across global core FI curves.
• On a longer-term horizon, a breach of 4.80% on the 10-year yield would first expose the January 2025 high at 4.921%. Clearance of the 5.00% handle for the first time since the 2008 would clear the way to the June 2008 high at 5.274% and the July 2007 high at 5.564%.
• A bear cycle in Gilt futures remains in play. Futures are currently -15 ticks at 90.44, piercing support at 90.59 (yesterday's low) and 90.46 (May 23 low). This signals scope for an extension towards 90.11, the May 22 low.
• This week's domestic focus remains on tomorrow's CPI report. MNI's preview will be out this morning. 

Figure 1: 10-year Gilt Yield Simple Decomposition (Daily)

Figure 2: 10-year Gilt Yield Since 1993 (Monthly)

• Worth keeping an eye on the German 5s/30s given that the 30yr part of the curve remains heavy.
• Overnight, the Japanese 20yr Auction drew some demand that was weaker than averages, and the Expected increase of Issuance next Year in Europe and caution from Investors on longer Dated debt demand seems to be weighing.
• The German 5s/30s is finding some resistance at the 103.00 handle, printed a 102.999 high.
• The July high stands at 130.215, which is also the steepest level since May 2019 (Prices are all according to Bloomberg).

(Chart source: MNI/Bloomberg Finance LP).

SONIA futures are off yesterday’s session lows (currently little changed vs yesterday's settlement) but the trend remains biased in a hawkish direction. Today’s regional calendar is light, with focus on tomorrow’s July CPI report. MNI’s preview for that release will be out this morning.

• BOE-dated OIS briefly priced just ~5.5bps of easing through the November decision during yesterday afternoon’s broad-based UK rates selloff (i.e. just over a 20% implied probability of a 25bp cut).
• This morning, markets price ~6.5bps of cuts through November. The combination of long-end pressures, related fiscal uncertainty, a hawkish-leaning August BOE vote split and modestly resilient labour market report have all contributed to the recent repricing at the front-end.
• There are ~37bps of easing priced through the next 12 months.