GILTS: Firmer On Global Cues
Oct-15 09:27
Gilts have rallied, largely on spillover from wider core global FI markets.
- The reduction of short-term French political risks and late Tuesday comments from Fed Chair Powell (pointing to further rate cuts and the potential for the end of QT in the coming months) have provided the support.
- Gilts outperform swaps following Powell’s comments.
- Futures trade as high 92.41 before fading to 92.27 last.
- Fresh extension higher would target projection resistance (92.72).
- Yields 3-4bp lower across the curve, wings underperform.
- 10s pierced support at the August 11 low (4.548%). Uptrend support drawn from the Dec ’24 low was also tested (4.536%). The next level of note below there is the August low (4.496%), which equates to 92.73 in futures today.
- 30s have broken through uptrend support drawn off the April low (5.370%) and trade ~5bp above their August low (5.309%).
- This morning’s I/L supply saw a solid cover ratio (~3.5x), but pricing was on the soft side.
- The rally further out the curve has allowed yesterday’s dovish move in GBP STIRs to extend.
- SONIA futures flat to +3.0.
- BoE-dated OIS pricing ~10bp of easing through year-end.
- BoE’s Ramsden didn’t touch on monetary policy in his morning address.
- Fellow Deputy Governor Breeden is unlikely to cover monetary policy when she speaks later.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Nov-25 | 3.944 | -2.4 |
Dec-25 | 3.870 | -9.7 |
Feb-26 | 3.733 | -23.4 |
Mar-26 | 3.690 | -27.8 |
Apr-26 | 3.590 | -37.8 |
Jun-26 | 3.558 | -40.9 |
Jul-26 | 3.500 | -46.7 |
Sep-26 | 3.484 | -48.3 |
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EGBS: Upside Bias For Futures This Morning; Ratings Decisions Digested
Sep-15 09:25
Major EGB futures have drifted higher through the morning, with Bunds +21 ticks at 128.77. Initial firm resistance is the Sep 12 high at 129.09.
- Early focus for EGBs was on the digestion of Friday’s ratings decisions. OATs modestly underperform Bunds after Fitch downgraded France’s rating to A+. The 10-year OAT/Bund spread reached an opening high of almost 81bps this morning, but has since eased back to 79.5bps (+0.5bps today). While a net-negative for OATs, the ratings decision didn’t come as a massive surprise.
- Meanwhile, upgrades for Spain (S&P to A+) and Portugal (Fitch to A) have contributed to SPGB and PGB outperformance. The 10-year SPGB/Bund spread is 1bp tighter at 56bps, while the PGB/Bund spread is 0.5bps tighter at 40bps.
- German yields are 1.5-2.5bps lower, with the belly of the curve outperforming.
- Early ECBspeak has not been market moving, with new Austrian CB Governor Kocher outlining his pragmatic stance to policy. The median respondent to the ECB’s latest Survey of Monetary Analysts still sees one more 25bp cut this cycle.
- The Eurozone July trade surplus was smaller-than-expected at E5.3bln (vs E12.0bln cons, E3.7bln prior).
FOREX: AUD and GBP Moderately Outperforming
Sep-15 09:19
- The dollar index has operated within a 21 pip range on Monday, as markets await a stacked data and central bank calendar this week, headlined by the Fed. While moves remain moderate, the likes of AUD and GBP are outperforming early Monday.
- This has allowed AUDUSD to rise back towards cycle highs. Last week’s gains plus the breach of 0.6625, the Jul 24 high and bull trigger, confirmed a resumption of the technical uptrend, and the pair has narrowed the gap substantially to the US election related highs at 0.6688.
- It is worth noting that EURAUD sits over 3% below the late August highs, with a breach of trendline support and the July 31 low bolstering bearish momentum. Targets on the downside would include 1.7462 (Jun 10 low) and 1.7248 (May 14 low).
- GBPUSD broke above last Friday’s highs this morning to reach an intra-day high of 1.3599, briefly breaching the bull trigger located at 1.3595, the August 14 high. The rally that started Sep 3 has retraced the steep Sep 2 sell-off and highlights a stronger bullish development. This suggests the corrective cycle between Aug 14 - Sep 3 is over. UK Labour market figures, CPI data and the BOE will place a huge amount of attention on sterling this week.
- USDJPY is also a touch lower since the open, however, spot levels of 147.40 are not far from the mid-point of the recent 146.20-149.15 range. The Bank of Japan will also meet this week.
- US Empire State manufacturing data headlines a relatively quiet economic calendar on Monday. No surprises are expected from ECB President Lagarde, due to speak at Montaigne Institute’s 25th anniversary event, in Paris.
BUNDS: Looking to test the initial resistance
Sep-15 09:16
- The German Bund targets the initial small resistance noted at 128.84, not seen a clear new driver, and the move has mostly been gradual throughout the early trading session.
- In terms of flow, volumes are still on the lighter side and the fade off the highs in Equities has put some impetus in the EGB recovery off their respective lows.
- A clear break through 128.84 would open to the 129.13 gap next.
