GILTS: Budget-Driven Rally Fades
Nov-27 10:51
Gilts have trimmed yesterday’s gains.
- While there hasn’t been much in the way of fresh news to digest, we would suggest that scepticism surrounding the backloaded nature of the fiscal tightening outlined in the Budget (and questions whether it will ultimately be implemented) is weighing on UK paper today.
- As a result, futures only managed an incremental move through yesterday’s high at the open, topping out at 91.93, before moving back below 91.50 as the morning wore on.
- Note that yesterday’s rally strengthened the bullish technical theme. Round number resistance is located at 92.00, while initial support of note comes in at the November 25 low (90.53).
- Yields 2-4bp higher, 10s under the most pressure.
- We don’t see anything in the Budget that prohibits a December rate cut from the BoE.
- BoE-dated OIS prices 22bp of easing for December. SONIA futures flat to -3.5 given the pullback further out the curve. Implied terminal rate pricing back into the multi-week range, last 3.35% after registering a fresh ’25 dovish extreme of 3.285% yesterday.
- Ongoing fallout from the Budget will be monitored today.
- Elsewhere, comments from BoE’s Greene (who voted to leave rates unchanged earlier this month) are due at 16:30 London. We don’t expect Greene to indicate support for a cut at the December meeting (the topic of her address is “balancing risks”).
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.748 | -22.1 |
Feb-26 | 3.683 | -28.6 |
Mar-26 | 3.596 | -37.3 |
Apr-26 | 3.495 | -47.5 |
Jun-26 | 3.449 | -52.0 |
Jul-26 | 3.388 | -58.1 |
Sep-26 | 3.369 | -60.1 |
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US TSYS: Little Changed; Consumer Confidence and 7Y Supply Lead Docket
Oct-28 10:49
- Treasuries are little changed on the day, with yields between +/- 0.5bps, consolidating yesterday’s twist flattening.
- Early attention could be on geopol headlines, including with President Trump at a dinner with business leaders in Tokyo.
- We suspect today’s data focus is on the Conference Board consumer survey for October, especially the labor differential which in recent months has continued to imply a steady drift higher in the unemployment rate.
- Today also sees further note issuance with 7Y supply after yesterday’s double 2Y and 5Y auctions of which both were near in-line.
- The FOMC tomorrow, Trump-Xi Thursday and big tech earnings loom large this week.
- Fed Funds implied rates are unchanged on the day, pointing to a 25bp cut tomorrow and a cumulative 49bp to year-end, before 73.5bp for March and 93bp for June.
- TYZ5 trades at 113-16 (+02+) on modest volumes of 245k, having kept to narrow ranges of 113-14+ to 113-18+.
- It consolidates yesterday’s lift off lows of 113-04, in a move that probed support at 113-06+ (20-day EMA) and opened 112-25+ (50-day EMA). Recent weakness appears to be corrective with a bullish structure still in place, with resistance at 113-24 (post-CPI high) before 114-02 (Oct 17 high).
- Data: FHFA/S&P Cotality House Prices Aug (0900ET), Conf Board consumer survey Oct (1000ET), Richmond Fed mfg Oct (1000ET), Dallas Fed Services Oct (1030ET)
- Coupon issuance: Tsy $44B 7Y Note auction - 91282CPF2 (1300ET)
- Bill issuance: US Tsy $95B 6W & $50B 52W bill auctions (1130ET)
- Politics: Trump in Reception and Dinner with Business Leaders in Tokyo (0605ET)
GERMAN AUCTION RESULTS: Weak 2.20% Oct-30 Bobl Results
Oct-28 10:41
- Another weak German auction today of the 2.20% Oct-30 Bobl. Amount of bids remained roughly unchanged vs October 7, when the line was last issued.
- Demand metrics remained very weak despite picking up marginally vs Oct 7: The auction was technically uncovered with a 0.94 bid-to-offer. Bid-to-cover also low at 1.24x. The lowprice achieved at the auction was above the pre-auction secondary market midprice, however.
- No discernible market reaction following the results.
ECB: Panetta Sees EUR Strength Eroding EZ Competitiveness
Oct-28 10:33
"ECB'S PANETTA: EURO APPRECIATION IS SIGNIFICANTLY ERODING PRICE COMPETIVENESS OF EU PRODUCTS" - Reuters
