GILTS: CPI-Driven Outperformance Holds Despite Pullback From Highs

BNP (18/12/26) 68p, sold at 8.4 in 2k.

Gilts have rallied but yields are still 5-14bp above Thursday’s closing levels after Chancellor Reeves’ apparent u-turn when it comes to raising income taxes increased the fiscal risk premium in gilts.

• Weekend press reports were focused on smaller taxes and opinion pieces surrounding fiscal policy, nothing to really move the market.
• Futures +12 at 92.27.
• Initial support of note located at 91.82, while bulls ultimately need to close Friday’s opening gap lower (~93.35) to start turning the technical tide back in their favour.
• Yields 2.5-3.5bp lower, curve steepening.
• 2s10s trades less than 1bp from its October closing high (located at 74.26bp), while 5s30s is a little over 1bp off its October closing high (located at 140.12bp).
• Dovish adjustment in GBP STIRs given the move further out the curve. SONIA futures flat to +3.0. BoE-dated OIS little changed to 2bp more dovish on the day, showing 18bp of easing for December, 26.5bp through February and 34bp through March.
• BoE MPC member Mann will speak this afternoon (13:20 London). We have previously suggested that speeches from MPC members outside of Governor Bailey are likely to have less impact for markets in the run up to the December decision (given their entrenched views).
• CPI data (Wednesday) headlines this week’s UK calendar (see our gilt Week Ahead & morning STIR bullet for more on that release, our full preview will cross in due course).