GILTS: Bear Steepening, Questions Surrounding PM's Future Dominate
Gilts hold lower and trade wider. vs. Bunds across the curve.
- Futures -37 at 93.50 vs. lows of 93.46. Key resistance at 93.98 held yesterday but bulls remain in technical control.
- Yields 2-4bp higher, curve steepens. 2s10s extends the recovery from October lows after uptrend support held.
- Gilt/Bunds +2bp at 175bp.
- Rumours surrounding a potential leadership challenge within the ruling Labour Party, presence of syndicated gilt supply (albeit I/L, with books now closed) and the bid in equities seem to be the driving factors.
- The former seems to be the key differentiator and driver of gilt widening vs. Bunds, particularly given the proximity to the Budget (November 26) and recent reduction in UK political & fiscal risk premia.
- Note that Health Secretary Streeting played down suggestions that he is planning to challenge PM Starmer, but the furore will nevertheless raise speculation about the PM's position.
- BoE-dated OIS 0.5-2.0 bp less dovish vs. closing levels, showing 20bp of easing for December, 31bp through February, 40bp through March and 51bp through April.
- SONIA futures 0.25-3.0 lower, implied terminal rate pricing continues to hover around 3.30%.
- SFIZ6 and SFIZ5/Z6 registered incremental dovish cycle extremes yesterday.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.768 | -20.2 |
Feb-26 | 3.660 | -30.9 |
Mar-26 | 3.574 | -39.5 |
Apr-26 | 3.463 | -50.7 |
Jun-26 | 3.419 | -55.0 |
Jul-26 | 3.367 | -60.2 |
Sep-26 | 3.346 | -62.3 |
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US TSY FUTURES: Net Long Setting Further Out The Curve Dominated On Friday
OI data points to a mix of net long setting (TU, TY, US & WN) & short cover (FV & UXY) as Tsy futures bull flattened on Friday.
- The net long setting in US & WN futures tilted the curve-wide positioning bias in that direction.
| 10-Oct-25 | 09-Oct-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,608,833 | 4,588,576 | +20,257 | +791,916 |
FV | 6,738,869 | 6,763,480 | -24,611 | -1,076,876 |
TY | 5,393,544 | 5,388,428 | +5,116 | +347,166 |
UXY | 2,451,982 | 2,457,634 | -5,652 | -514,160 |
US | 1,919,327 | 1,908,839 | +10,488 | +1,358,314 |
WN | 2,062,865 | 2,044,211 | +18,654 | +3,557,670 |
|
| Total | +24,252 | +4,464,031 |
OUTLOOK: Price Signal Summary - USDJPY Trend Set-Up Remains Bullish
- In FX, EURUSD is trading closer to its recent lows. A short-term corrective bear cycle remains intact. Last week’s sell-off resulted in a breach of the 50-day EMA and support at 1.1646, the Sep 25 low, exposing 1.1516, 76.4% retracement of the Aug 1 - Sep 17 bull leg. Note that MA studies are in a bull-mode position. This continues to highlight a dominant medium-term uptrend. Initial firm resistance is 1.1779, the Oct 1 high. A break of this level would signal a bull reversal.
- A short-term bear condition in GBPUSD remains intact and last week’s extension down has strengthened this condition. The pair has breached a key short-term support at 1.3333, the Sep 3 low. The break signals scope for a deeper retracement. A clear break of 1.3280 (pierced), 76.4% of the Aug 1 - Sep 17 bull leg, would open key support at 1.3142, the Aug 1 low. Initial resistance to watch is 1.3443, the 20-day EMA.
- The underlying bullish trend condition in USDJPY remains intact and Friday’s pullback is for now, considered corrective. Note that the trend is overbought and a deeper retracement would allow this overbought set-up to unwind. The next important support lies at 149.45, the 20-day EMA. On the upside, a break of Friday’s 153.27 high, would resume the uptrend and open 154.39, the 76.4% retracement of the Jan 10 - Apr 22 bear leg.
