GILTS: Curve Twist Steepens After Soft GDP

Gilts are back from early highs.

• Softer-than-expected UK GDP data provided the initial rally.
• Twist steepening of the curve promoted by the data driving dovish BoE repricing, while also calling into question the optimistic economic growth forecasts that accompanied the Budget. Slower GDP growth would erode some of the government’s envisaged fiscal headroom if the trend was to persist.
• A hold of resistance at yesterday’s high in futures and an uptick in European equities also provided some pressure.
• Yields now 2bp lower to 2bp higher, with 2s10s and 5s30s extending bounces from post-Budget lows.
• Futures -17 at 91.31.
• Recovery from Monday’s lows has eased the bearish threat, initial resistance located at 91.64. an extension of the early morning rally would switch focus to the November 27 high (91.93).
• Meanwhile, bears need to break a support cluster (90.62 & 90.53) to regain momentum.
• GBP STIRs edge away from dovish session extremes as the long end falters.
• BoE-dated OIS little changed to 2.5bp more dovish across liquid contracts. 22bp of easing priced for next week’s decision, 60bp of easing priced through ’26.
• SONIA futures flat to +3.0.
• Terminal rate pricing trades back below 3.40% after threatening to test 3.50% earlier in the week. A reminder that doves failed to force a meaningful break below 3.30% in recent weeks.