GILTS: Bear Steepening On Global Cues
Gilts hold lower, with hawkish BoJ comments and firmer oil prices weighing on wider core global FI markets.
- Political pressure for Chancellor Reeves also noted in the wake of the Budget (via accusations that she misled the Cabinet, parliament and financial markets in the run up to the Budget).
- Gilt futures as low as 91.16. First support not seen until the November 26 low (90.53). A break there would negate some of the recent bullish momentum.
- Yields 2-6bp higher, curve steeper.
- 10+-Year yields have failed to retest October/early November lows, despite the post-Budget rally in UK paper. This morning’s sell off leaves 10s 6bp above post-Budget lows, while 30s are 9bp above last week’s base.
- The backloaded nature of the fiscal tightening outlined in the Budget, coupled with some questions surrounding the accuracy of the fiscal headroom calculations, could leave gilts susceptible to steepening pressure. This could be particularly true in times when wider core global FI markets are coming under pressure.
- Gilt/Bunds ~175bp, sticking within the multi-week range.
- Front end still pricing over 80% odds of a BoE rate cut later this month.
- Dhingra, the most dovish member of the BoE’s MPC, will give a keynote speech at the UK Trade Policy Observatory’s annual conference (15:30 London). We expect Dhingra to vote for a cut later this month and she should reaffirm her dovish credentials later today, if she does touch on monetary policy.
- Elsewhere, the DMO will conduct its consultation with investors and GEMMS this afternoon.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.748 | -22.0 |
Feb-26 | 3.684 | -28.5 |
Mar-26 | 3.599 | -37.0 |
Apr-26 | 3.499 | -47.0 |
Jun-26 | 3.451 | -51.8 |
Jul-26 | 3.388 | -58.0 |
Sep-26 | 3.369 | -60.0 |
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
