GILTS: Cross-Market Cues Still Guiding Moves
Gilts following cues from Tsys/broader cross-market swings, with a recovery from session lows fading, leaving benchmark futures ~10 ticks off session lows.
- The bearish technical backdrop in the contract remains intact.
- Little in the way of domestic drivers evident since this morning’s gilt auction and DMO provisional issuance calendar for the initial weeks of FY25/26.
- Yields 3.5-5.5bp higher across the curve, flattening seen.
- 10s ~4.5bp wider vs. Bunds on the day, last ~182.5bp. This comes after the early tightening failed to test the support cluster at 175/174.5bp.
- BoE-dated OIS shows ~53bp of cuts through year end, ~5bp less dovish on the day.
- The next 25bp cut isn’t quite fully priced through June (~24.5bp of cuts showing over that horizon).
- SONIA futures flat to -7.0.
- Nothing of note on the UK calendar until Friday’s monthly economic activity data, with the BoE in its pre-meeting quiet period.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.457 | +0.2 |
May-25 | 4.266 | -18.9 |
Jun-25 | 4.211 | -24.4 |
Aug-25 | 4.073 | -38.2 |
Sep-25 | 4.035 | -42.0 |
Nov-25 | 3.944 | -51.0 |
Dec-25 | 3.923 | -53.1 |
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STIR: Rally In Euribor Extends Alongside Core FI
Euribor futures continued to extend higher alongside broader core FI, now +1.0 to + 5.5 ticks through the blues. Headline flow has been relatively limited throughout the day, leaving volumes comfortably below recent averages.
- The back of the whites/front of the reds lead the rally in Euribor. Upside in ERZ5 continues to be capped by the Feb 3 high at 98.125, while ERZ6 has tested the Feb 5 high at 98.010.
- The ERH5/M5 spread has flattened 3.0 ticks today to -30.0 ticks, a fresh multi-week low.
- ECB-dated OIS up to 3bps more dovish than last Friday’s close, with 90bps of easing now priced through year-end.
- ECB President Lagarde will participate in a plenary debate on the ECB’s 2023 Annual Report at the EU Parliament at 1615GMT/1715CET (text will be released). However, any near-term policy signals are unlikely to deviate from the January decision guidance.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Mar-25 | 2.413 | -25.3 |
| Apr-25 | 2.216 | -44.9 |
| Jun-25 | 2.011 | -65.4 |
| Jul-25 | 1.923 | -74.2 |
| Sep-25 | 1.829 | -83.6 |
| Oct-25 | 1.807 | -85.8 |
| Dec-25 | 1.761 | -90.4 |
| Feb-26 | 1.758 | -90.7 |
| Source: MNI/Bloomberg. | ||
STIR: SOFR Option Update
More put structures and vol sales:
- +15,000 SFRN5 95.25/95.37/95.62 2x3x1 broken put flys, 0.75/wings over and bid
- -5,000 SFRU5 9593 straddles 39.5 ref 95.945
- -8,000 0QJ5 9550 puts, 2.0 vs 96.08/0.10%
- +8,000 SFRK5 95.62/95.68/95.75 put flys 1.75
- +10,000 SFRK5 95.68/95.75/95.81 put flys 1.5-1.75
STIR: Midmorning SOFR Option Update
Volume gradually picking up this morning, leaning towards downside puts as accts fade the bid in underlying off early session lows. Projected rate cuts through mid-2025 look steady to mildly higher vs. this morning's levels (*) as follows: Mar'25 at -1.9bp (-2.5bp), May'25 steady at -7.3bp, Jun'25 at -16.4bp (-15.5bp), Jul'25 at -21.6bp (-20.1bp).
- +2,500 SFRM5/SFRU5 95.68/97.00 call spd strip 43.00
- +4,000 SFRM5 95.50/95.62 put spds, 0.5 vs. 95.85/0.06%
- 1,500 SFRK5 95.68/95.75/95.81 put flys
- -6,000 SFRM5 96.31/96.50 call spds .25 over SFRM5 95.50/95.62 put spds ref 9583.5
- +10,000 0QM5 95.12/95.50 put spds 4.0 ref 96.065
- +2,500 0QU5/0QZ5 96.12/96.62/97.12 call fly strip, 16.5
- +2,500 0QM5 95.12/95.50 put spds, 4.0
