GILTS: Holding Firmer But Lagging Peers
Aug-13 15:03
While gilts have participated in the wider rally in core global FI markets, futures still haven’t closed the opening gap lower that was driven by Tuesday’s labour market data release (~92.25).
- Ongoing fiscal worry helps explain some of today’s gilt underperformance vs. both Bunds and Tsys, with the Guardian pointing to potential inheritance tax tweaks in the Autumn Budget overnight.
- Futures have traded as high as 92.04.
- Yields 3-5bp lower, curve a touch flatter.
- Benchmarks hold within pre-existing multi-week/month ranges.
- 50s back from yesterday’s cycle closing high.
- BoE-dated OIS and SONIA futures are pretty steady on the day.
- The former shows 16.5bp of easing through Dec and the next 25bp cut fully discounted through February. Contracts are little changed to ~2bp more dovish on the day.
- Meanwhile, SONIA futures are flat to +2.5.
- Little of note on the UK calendar today, with monthly economic activity and Q2 GDP readings due tomorrow.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Sep-25 | 3.969 | +0.2 |
Nov-25 | 3.863 | -10.4 |
Dec-25 | 3.802 | -16.5 |
Feb-26 | 3.691 | -27.6 |
Mar-26 | 3.642 | -32.5 |
Apr-26 | 3.561 | -40.6 |
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GBP: Break to New Lows as EUR/GBP Closes Range With Multi-Year High
Jul-14 14:59
- A phase of selling pressure tilts GBP to new pullback lows, pressuring GBP/USD to 1.3447 on generally very light volumes. No specific newsflow or headlines behind the move. The Times reported that Chancellor Reeves is "poised to force firms to pay more into staff pensions" - a concept that, while not new, would add to pressure on smaller firms already pressured by the increase in employers' NICs in last year's budget, adding to the downside risk to the UK jobs market this year.
- Consequently, EUR/GBP has broken and cleared above the early July high - putting the cross at the best levels since early April and narrowing the gap with 0.8738 in the process. The bull trigger above remains 0.8738, the 2025 high and near-term upside target.
- BoE's Bailey flagged the MPC's potential responsiveness to further jobs declines in his interview with The Times earlier: "The Bank of England is ready to make larger cuts to interest rates if the jobs market shows signs of a pronounced slowdown", adding that there was “consistent” evidence of businesses “adjusting employment” after Rachel Reeves increased employers’ national insurance contributions (NICs).
SONIA OPTIONS: Z5 Call Spread Buyer
Jul-14 14:52
SFIZ5 96.80/97.00 call spread, bought for 1.5 in 23.075k
SOFR OPTIONS: Aug'25/Oct'25 Put Skew Package
Jul-14 14:51
- Seven leg put skew package, 3.5 net package:
- +8,000 SFRQ5 95.81/95.93/96.00 broken put trees w/
- +8,000 SFRV5 96.25/96.31 put spds vs.
- -8,000 SFRV5 96.50/96.75 call spds
- Just prior:
- +5,000 SFRZ5 95.56/95.62/95.68 put trees, ref 96.14/0.05
