GILTS: Curve Bear Flattens, Supply Digested Smoothly

Gilts hold the bulk of their losses.

• Some concession was seen ahead of today’s green gilt supply and this morning’s syndication announcement seemed to weigh (a new long 13-year linker will be issued via syndication in the W/C 9 June. The timing is as we expected, but this maturity choice was not fully expected).
• Green supply ultimately saw solid demand, which allowed the space to stabilise.
• GU5 bases at 90.99.
• Fresh downward momentum would expose the 23 May low (90.46).
• Yields 2.5-4.0bp higher, curve bear flattens.
• 10-Year spread to Bunds ~2bp wider at ~215bp, on track for the highest close since mid-April. A cluster of April closing highs at 218.3/218.8bp presents the next upside areas of interest.
• BoE-dated OIS prices ~35bp of cuts through year-end vs. 36bp ahead of the gilt open.
• A text covering comments from BoE chief economist Pill will be released today (on the topic of “monetary policy: taking a walk on the supply side”) although don’t expect it to be market moving as the address was given on Thursday of last week.
• A reminder that Pill has already reaffirmed his position at the hawkish end of the BoE spectrum after lodging a dissenting vote earlier this month (to leave rates on hold).
• That should leave focus on macro cues.