GILTS: Bounces From CPI-Driven Lows Extends, Although Bearish Theme Intact
Gilt futures have traded through yesterday’s highs.
- The hawkish impact stemming from this morning’s firmer-than-expected CPI data was short-lived.
- At the time we argued that there wasn’t much in the way of game-changing information within the data, although the MPC will not have welcomed the overshoot vs. both market and its own projections.
- That idea played out when it came to the initial market reaction, with hawkish opening moves in both gilts and STIRs quickly countered. Support also stems from a bid in wider core global FI.
- Futures traded as low as 90.54 before recovering to 90.88.
- Bears remain in technical control, initial support and resistance located at 90.43/91.32.
- Yields 3-4bp lower across the curve.
- The May high in 10s (4.80%) remains untouched.
- 50s have pierced 5.00% over the past couple of sessions, but bears failed to force a sustained move above the psychological level, 4.94% last.
- Light outperformance for gilts vs. Bunds likely stems from pre-data positioning and spreads operating around multi-week wides ahead of the release.
- SONIA futures now -1.0 to +3.5 at/just off session highs. May lows go untested in SFIZ5, while June lows are untested in SFIZ6.
- BoE-dated OIS ~2bp more hawkish to ~2bp more dovish across liquid contracts, showing 6bp of easing for November and 11bp through year-end.
- Outside of the CPI data, Brightmine wage growth (released overnight) once again held steady at 3.0% in Y/Y terms for the three months through July.
- Little of note on the UK macro calendar for the remainder of the day.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Sep-25 | 3.973 | +0.6 |
Nov-25 | 3.909 | -5.8 |
Dec-25 | 3.860 | -10.7 |
Feb-26 | 3.760 | -20.7 |
Mar-26 | 3.718 | -24.9 |
Apr-26 | 3.645 | -32.2 |
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EGBS: Bunds Consolidate Morning Rally, 50-day EMA Untested For Now
Bund futures have consolidated this morning’s rally, currently +55 ticks at 130.10. Earlier session highs of 130.14 did not test resistance at the 50-day EMA (130.20), clearance of which is required to cancel the current bearish trend.
- There hasn’t been an overt headline driver for today’s EGB outperformance, but some have pointed to the latest EU-US tariff headline flow as a supportive factor. Progress on a deal remains limited, with the US eyeing a 15-20% baseline tariff and the EU preparing retaliatory options for a no-deal scenario.
- The German curve has bull flattened, with 2s10s back below 80bps for the first time in two weeks. 10s30s remains close to multi-year highs though, currently at 53bps.
- 10-year EGB spreads to Bunds are within 0.5bps of Friday’s closing levels, with the early rally in European equity futures fading.
- The Eurozone debt to GDP ratio inched up to 88.0% in Q1, up from 87.4% in Q4 2024 and 87.8% in Q1 2024.
- The ECB's Q2 SAFE survey suggests rate cuts are continuing to feed through into lending conditions and demand. However, near term prospects for business activity remain subdued.
- The remainder of today’s calendar is light, with focus on tomorrow’s Q2 BLS, followed by the July flash PMIs and ECB decision on Thursday.
GILTS: Early Rally Holds, Curve Flatter
Gilts remain underpinned alongside wider core global FI markets, with hawkish weekend tariff reporting centring on the U.S. & the EU seemingly underpinning the move.
- Futures have struggled to push meaningfully beyond Thursday’s high (91.53).
- Fresh extension higher would eye the 20-day EMA (91.99).
- Still, bears remain in technical control at this stage, next support seen at Friday’s low (91.08).
- Yields 2-4bp lower, curve flattens, akin to moves in global peers.
- 2s10s and 5s30s remain tethered to ~75bp and ~140bp, respectively, consolidating a little below their ’25 highs.
- 10s ~1.5bp wider vs. Bunds, spread back towards 200bp, having not closed above that level since mid-June.
- GBP STIRS still around levels that we outlined in our pre-gilt open comment, showing 48bp of BoE rate cuts through year-end, SONIA futures flat to +4.0.
- Little of note on the UK calendar today.
- Flash PMIs, public finances and retail sales data are due this week, while BoE Governor Bailey will testify on financial stability matters.
- More widely, UK focus remains on the fragile fiscal situation, with reports suggesting that Chancellor Reeves will continue to resist the idea of a wealth tax, as some Labour Party MPs continue to push for the policy move.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 4.000 | -21.7 |
Sep-25 | 3.963 | -25.4 |
Nov-25 | 3.806 | -41.1 |
Dec-25 | 3.739 | -47.9 |
Feb-26 | 3.624 | -59.3 |
Mar-26 | 3.599 | -61.9 |
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