GILTS: Bear Steepening Within Recent Ranges

Gilts hold lower looking to cues from Tsys after yesterday’s soft 30-Year U.S. auction.

• Futures as low as 92.14.
• The 20-day EMA (92.11) and yesterday’s low (92.00) remain untouched, leaving the recent bullish cycle intact. Initial resistance located at the 5 August high (92.84).
• Yields 1-3bp higher, curve steeper, but major spreads still comfortably flatter than pre-BoE levels.
• Spread to Bunds 0.5bp wider, trading 192bp, 200bp remains untested in August.
• The DMO has announced that the next syndication will be the launch of a new 10-year conventional gilt maturing on 22 October 2035. The transaction will take place in the W/C 1 September subject to market conditions
• We had already pencilled in a 10-year gilt for that week - so this is not a huge surprise. We pencil in Tuesday 2 September but Wednesday 3 September is also possible.
• 17bp of BoE easing priced through year-end, with the next cut fully discounted through the end of the Feb MPC.
• SONIA futures little changed to -2.0.
• SFIZ5 broke its July low during yesterday’s sell off but failed to test June lows before recovering. Meanwhile, SFIZ6 failed to challenge its August base.
• We have seen a couple of hawkish sell-side BoE view changes, but most still lean towards a cut at the next MPR meeting in November.
• Comments from BoE’s Pill are due later today, but the chief economist’s hawkish stance has been underscored by yesterday’s dissenting vote. Comments surrounding his dissent are eyed as a result. Expect him to remain relatively hands off when it comes to the timing of any potential future policy moves and ongoing focus on the uncertain outlook the UK faces.