GILTS: CPI-Driven Rally Fades
Gilts have moved away from session highs alongside core global FI peers, with e-minis off session lows.
- Gilt futures -11 at 92.22.
- Initial support and resistance located at 91.94 and 92.85, with our technical analyst deeming the recent pullback to still be corrective in nature at this stage.
- Yields flat to 1.5bp lower, curve steeper.
- 2s10s is through October closing highs, next upside level of note at the September 2 year-to-date closing high (81.63bp).
- The presence of this morning’s supply will have factored into the move off highs, with the GBP4.5bln sale of the 4.75% Oct-35 line ultimately generating results that were broadly in line with October’s 10-Year offering i.e. not standout but not particularly weak.
- A reminder that we didn’t deem this morning’s (roughly in line) CPI data to be a needle mover for the BoE over the medium-term but noted that it did lower the bar to a December cut.
- Short end pricing seems to agree with this idea.
- BoE-dated OIS now pricing ~21bp of easing for December vs. closer to 19bp late yesterday (we will get another round of inflation and labour market data before that decision)
- SONIA futures flat to +1.5, back from early highs.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.760 | -20.9 |
Feb-26 | 3.685 | -28.4 |
Mar-26 | 3.604 | -36.5 |
Apr-26 | 3.502 | -46.7 |
Jun-26 | 3.458 | -51.1 |
Jul-26 | 3.458 | -51.1 |
Sep-26 | 3.444 | -52.5 |
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
EQUITY OPTIONS: BNP downside Option trade
BNP (18/12/26) 64p, bought for 7.5 in 1k.
STIR: Fed Rate Path Mildly Higher On Cautious Optimism
- Fed Funds implied rates are modestly higher from Friday’s close, mirroring equity futures in cautious optimism on US-China trade talks ahead of a Trump-Xi meeting at the end of this week.
- They’re back to fully pricing 2x25bp cuts in the two meetings left this year having hit ~20% odds of a 50bp cut at the Dec meeting early Friday morning on US regional bank concerns.
- Cumulative cuts from an assumed 4.11% effective: 25bp Oct, 50.5bp Dec, 64.5bp Jan, 77.5bp Mar, 85.5bp Apr and 99.5bp Jun.
- SOFR futures are broadly 1-1.5 ticks lower on the day.
- The SOFR implied terminal yield of 2.945% (SFRZ6) is 1.5bp higher as it continues to slowly pull away from Thursday’s 2.89% close at what was the lowest in a month. Cycle lows are seen at 2.77% from Sep 2024.
- The FOMC is now in media blackout ahead of the Oct 29 FOMC decision.
- The ongoing US government shutdown further restricts data this week, leaving Friday’s CPI report for September the clear headline (with the BLS making an exception for the release on social security payment grounds).
US 10YR FUTURE TECHS: (Z5) Bullish Outlook
- RES 4: 115-00+ High Oct 1 ‘24 (cont)
- RES 3: 114-21+ 1.00 proi of the Aug 18 - Sep 11 - 25 price swing
- RES 2: 114-10 High Apr 7 (cont) and a key resistance
- RES 1: 114-02 High Oct 17
- PRICE: 113-13+ @ 11:08 BST Oct 20
- SUP 1: 113-00 20-day EMA
- SUP 2: 112-30 Low Oct 13
- SUP 3: 112-19+ 50-day EMA
- SUP 4: 112-06 Low Sep 25
Treasuries remain in a clear bull cycle. Friday’s initial gains resulted in a breach of key resistance at 113-29, the Sep 11 high. This confirms a resumption of the M/T uptrend. Note that MA studies are in a bull-mode position and this set-up continues to highlight a dominant uptrend. Sights are on 114-10, the Apr 7 high (cont) and the next key resistance. Firm support lies at 112-30, the 20-day EMA. S/T weakness is considered corrective.
