GILTS: Bull Flattening, Albeit With Bears Remaining In Technical Control

Gilts have firmed, initially benefitting from the bid in wider core global FI markets (with focus on U.S. NEC Chair Hassett’s warning re: the upcoming labour market report and a bid in JGBs amid ongoing digestion of the fiscal situation in post-election Japan).

• Swelling global issuance has capped the rally to some degree.
• Gilts & swap spreads have recovered after Monday’s ministerial support for PM Starmer (albeit with questions over how long such support will ultimately last), trimming UK political & fiscal risk premia established in recent sessions. 10-Year swap spreads are less than 1bp off year-to-date highs.
• Gilt futures +32 at 90.83 vs. highs of 90.96, closing Monday’s opening gap lower.
• The contract has broken through downtrend resistance drawn off the January 15 high. Still, the 20-day EMA (91.09 today) remains unchallenged and presents initial resistance. That leaves bears in technical control, with yesterday’s cycle low (89.76) providing initial support.
• Yields 0.5-3.0bp lower, curve flatter. 2s10s sub-90bp after the first close above since ’18. Next upside level of note at the ’18 closing high (94.63bp).
• Gilt/Bunds traded as wide as ~175bp during yesterday’s gilt sell off but has narrowed to ~166bp at typing.
• The DMO’s GBP3.75bln sale of the 4.125% Mar-31 gilt generated decent demand.
• There is focus on U.S. tech giant Alphabet’s debut GBP deal (across 3-, long 6-, long 15-, 32- & 100-Year maturities). Watch for activity around pricing.
• Front end pricing steady on the day, showing 17bp of easing for March, 23bp for April, 32bp through June and 45bp through November.
• Little of note on the UK economic calendar today.