GILTS: Bear Flattening extends Alongside Hawkish BoE Repricing
Gilts remain under pressure with Qatar’s warning on upside potential for crude oil providing the latest headwind for core global FI markets and tailwind for energy prices, with ongoing missile activity in the Middle East also noted.
- Futures as low as 90.37 before a recovery to 90.60, -65 or so on the day. Fibonacci support (90.72) and the February 11 low (90.60) pierced, exposing key support at the February 9 low (89.79).
- Yields 4-9bp higher, curve flattens.
- 2s to the highest level in October. Bears will look to close the October 14 gap lower in the benchmark (3.950%)
- 10s through broke November highs (4.619%). October 14 gap lower would be closed at (4.658%)
- 2s10s registered a fresh low at 67.02bp on the move.
- The latest leg of hawkish repricing resulted in fresh cycle lows for SONIA futures, with SFIZ6 & SFIZ7 hitting the lowest levels seen since May. Next support levels of note there located at 96.225 & 96.115, respectively.
- BoE-dated OIS briefly priced less than 10bp of easing through year-end, back to ~14bp last and compares to 52-53bp late last week.
- Global cues dominate domestic matters in recent sessions, with inflationary risks stemming from the escalation in the Middle East at the fore, more than countering the market impact of February’s dovish hold from the BoE.
- Geopolitical matters centred on the Middle East and the U.S. NFP release in focus into the weekend.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Mar-26 | 3.704 | -2.7 |
Apr-26 | 3.661 | -6.9 |
Jun-26 | 3.625 | -10.5 |
Jul-26 | 3.604 | -12.6 |
Sep-26 | 3.604 | -12.6 |
Nov-26 | 3.597 | -13.3 |
Dec-26 | 3.593 | -13.7 |
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SONIA OPTIONS: Put Condor
SFIK6 96.80/96.70/96.55/96.35p condor, bought for 4.75 in 5k.
EGBS: 2.90% Again Contained Upside In 10-year Bund Yields Yesterday
10-year Bund yields were once again unable to sustain a move above 2.90% yesterday. Yields are back at 2.875% at typing. The key topside levels to watch remain 2.914% (Dec 22 high) and the more important 2.94% (March 2025 high). Although the medium-term risk to Bund yields is likely still to the upside (owing to well-documented fiscal/issuance dynamics), lingering geopolitical uncertainty, shifting investor demand patterns (e.g. away from 30-year maturities and towards the 10-15-year segment) and the absence of a near-term hawkish ECB pivot may promote rangebound trading for now.
- Across the curve, German yields are down 1-2bps, with 2s10s flattening 0.5bps.
- Bund futures are +16 ticks at 127.85. Initial resistance is 128.03, followed by the more important 128.40 level (Jan 29 high).
- Germany sold E4bln of the 7-year 2.50% Nov-32 Bund this morning, while Belgium is holding a 30-year OLO syndication.
- 10-year EGB spreads to Bunds are mixed, with BTPs 1bp narrower at 60bps and OATs and RAGBs marginally wider.
- Eurozone flash January headline HICP was in line with consensus and MNI tracking at 1.69% Y/Y (vs 1.97% prior), while core softened to 2.19% Y/Y (vs 2.2% MNI consensus, 2.3% BBG consensus and 2.32% prior). Overall, it argues in favour of Chief Economist Lane’s expectation for a more sustainable composition of inflation in 2026 – it’s not likely to promote a meaningful ECB pivot at this stage.
- The Eurozone January composite PMI was revised down to 51.3 (vs 51.5 flash).
Figure 1: 10-year Bund Yields Since 2024 (Source: Bloomberg Finance L.P)
COMMODITIES: Gold Continues to Retrace Jan 29 - Feb 2 Sell Off
A bull cycle in WTI futures remains intact. However, Monday’s impulsive sell-off continues to highlight the beginning of a corrective phase. Attention is on support at the 20-day EMA, at $61.22. The 50-day EMA lies at $59.88. A clear breach of the 50-day average would highlight a stronger reversal and open $58.53, the Jan 20 low. Key resistance and the bull trigger has been defined at $66.48, the Jan 30 high. Gold has recovered from Monday’s low and is retracing the Jan 29 - Feb 2 sharp sell-off. The next two resistance points to monitor are $5139.9 and $5314.0, Fibonacci retracement levels. Note that the sharp sell-off from last week’s high still highlights a potential top in the L/T trend and from a S/T perspective, marks an unwinding of the recent extreme overbought condition. A reversal lower would refocus attention on $4403.0, the Feb 2 low.
- WTI Crude up $0.46 or +0.73% at $63.69
- Natural Gas down $0.01 or -0.21% at $3.304
- Gold spot up $109.7 or +2.22% at $5056.7
- Copper down $5.45 or -0.9% at $603.2
- Silver up $4.47 or +5.25% at $89.7014
- Platinum up $68.52 or +3.09% at $2285.41
