STIR: GBP 1y1y Moves Towards Recent Lows, Wedge Forming

• ILTR takeup GBP3.695bln (net GBP1.08bln) to GBP55.401bln.
• That is a record high but the smallest net increase for 6 weeks.
• As the gross takeup is below GBP8bln (which it has been at every operation), the operation is fully allotted at the minimum clearing spreads against all collateral levels.
• Last week saw GBP7.508bln gross takeup (the highest ever) which saw a GBP7.158bln net increase.
• As we have noted, RONIA is now back within normal levels and we have passed the large TFSME repayments (but will be watching the balance sheet update on Thursday to see if there were any further repayments late last week).
• We will be watching the STR operation on Thursday closely to see whether there is any further increase in STR usage or indeed if it falls back a bit now that peak funding concerns are out of the way. And as we have also noted, around big reductions in supply-led BOE balances (large holdings of APF gilts maturing or the TFSME repayment deadlines) there is always some volatility around the STR/ILTR usage.

Gilts continue to outperform core global FI peers after the UK media signalled the increased likelihood pf meaningful fiscal tightening in the UK.

• Chancellor Reeves didn’t provide any fresh detail, which saw gilts trade away from session highs.
• Still, her choice of phrases and omissions of manifesto pledges (there was no mention of avoiding hiking the big 3 taxes and no increases of taxes on working people) left the door open to meaningful alterations in the Budget later this month.
• Elsewhere, wider risk-off price action stemming from equity weakness in a couple of meaningful global tech names (Palantir & SK Hynix) provided cross-market support.
• Gilt futures traded as high as 93.98 before trimming gains to ~93.70 (+33).
• Next resistance at 94.00.
• Yields 2.5-3.5bp lower, curve flatter. October closing lows intact at this stage.
• Long 3-Year supply passed smoothly.
• SONIA futures flat to +4.0. October highs in SFIZ6 remain untouched.
• BoE-dated OIS is flat to 2bp more dovish on the day, showing 7bp of easing for this week’s meeting (which we deem to be a 50/50 decision), 17bp through December (vs. ~19bp at one point today) and 30bp through February.
• BoE’s Breeden will speak at Santander’s International Banking Conference. Note that the BoE is in its pre-meeting quiet period, so don’t expect her to comment on monetary policy. She will focus on financial stability and there will not be a text release.