GILTS: Bear Steepening Extends
Weakness in wider core global FI markets has pushed gilt futures through lows from last Wednesday & Thursday, leaving bears focused on nearby Fibonacci support (91.50), followed by the Feb 2 low (91.16).
- A relatively heavy session for global sovereign supply, the EU escaping higher U.S. tariffs (at least for now), a delay of the broader U.S. tariff deadline, further steepening on the JGB curve and a hawkish RBA outcome have all factored into this morning’s weakness.
- Yields 3-7bp higher, curve steeper.
- 10-Year yields registered a fresh July high (4.640%), with focus now on the June 9 high (4.673%).
- 2s10s though the month-to-date closing high, last 74.5bp, ~10bp off April’s intraday year-to-date high.
- 5s30s set for a fresh year-to-date closing high, last 14.06bp. Focus on the April intraday high at 147.2bp.
- There was no immediate reaction to the OBR’s Fiscal Risks and Sustainability Report, although the details won’t do much to alleviate long-term worry surrounding the UK’s fragile fiscal state and well-documented productivity headwinds.
- This morning’s GBP900mln sale of the 1.875% Sep-49 I/L gilt passed smoothly.
- BoE-dated OIS shows 52bp of cuts through year-end after failing to push meaningfully beyond 55bp in recent weeks. Over 80% odds of a 25bp cut are still priced through the August MPC, with such a step still fully discounted come the end of the September MPC.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 4.003 | -21.4 |
Sep-25 | 3.948 | -26.9 |
Nov-25 | 3.781 | -43.7 |
Dec-25 | 3.696 | -52.2 |
Feb-26 | 3.566 | -65.1 |
Mar-26 | 3.535 | -68.2 |
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JGB TECHS: (M5) Rallies Off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.19 @ 15:53 GMT Jun 06
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US TSYS/SUPPLY: MNI UST Issuance Deep Dive: June 2025
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- May’s refunding round saw guidance as well as coupon sizes for the current quarter unchanged.
- The August round (Jul 28-30) could prove more compelling, reflecting both pressure at the long end of the Treasury curve as well as a shifting fiscal outlook amid tariff revenues contrasted with impending tax cuts (not to mention the likelihood of approaching the debt limit at around that time if it’s not lifted).
- Future Coupon Upsizing: We’ve seen some expectations that Treasury could lean against some of those trends in the August refunding, with potential signals if not immediate action on adjusting buybacks or even reducing issuance duration in order to reduce pressure on the long end. MNI’s current expectation is that coupon sizes will only be increased in early 2026. We will update in our next Deep Dive at end-June, with our full refunding preview coming in late July.
- Upcoming issuance: June is set to see $315B in nominal Treasury coupon sales, in addition to $23B in 10Y TIPS and $28B FRN for a total of $366B. Sales for the month start in the coming week, on Tuesday June 10 with $58B of 3Y Note, Wednesday June 11 with $39B of 10Y Note, and Thursday June 12 with $22B of 30Y Bond.
- May Auction Results: Against a backdrop of continued steepening pressure for global sovereign curves, May’s coupon auctions saw strong sales at the short-end/belly contrasted with tails at the long-end.
US FISCAL: Extraordinary Treasury Measures Tick Up As Cash Depletes
Treasury had $84B in "extraordinary measures" available to keep the government financed as of June 4 per a release Friday. That is up from $68B a week earlier though Treasury has exhausted three-quarters of the total initially available ($362B) when the debt limit impasse began in January.
- Combined with a pullback in Treasury cash ($376B), the total resources available to avert an "x-date" in the summer are down to a total $460B, the lowest since April 10 before the annual tax take accelerated.
- There will be another uptick in Treasury cash late next week/early the following week around the mid-June tax date, but this is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
