GILTS: Holding Lower After CPI, Next Support In Futures Nears
Gilt futures just above session lows, with a downtick in wider core global FI and this morning’s mixed domestic CPI data providing much of the weight.
- Futures have breached initial support, with bears now looking to test the 29 Jan low (91.96), which protects more meaningful support at the 24 Jan low (91.52). The short-term bull cycle remains intact above the latter.
- Yields 3-5bp higher across the curve, 10s lead the move.
- Demand at the 4.375% Mar-28 gilt auction was a little soft, with the lowest accepted price below pre-auction mids and the cover ratio edging lower vs. the previous auction. There was no tangible market reaction
- Elsewhere, the DMO announced the launch of a new index-linked gilt maturing on 22 September 2049. The transaction is set to take place in the week commencing 10 March 2025, subject to demand and market conditions.
- BoE-dated OIS shows 50.5bp of cuts through December vs. 53.5bp at yesterday’s close.
- Further forwards, the strip shows 0.5bp of cuts for next month, 20bp of easing through May and 26bp of cuts through June.
- A reminder that we have suggested that today’s inflation data is unlikely to move the needle when it comes to specific MPC member votes in March and continue to look for the next rate cut to come in May.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.450 | -0.4 |
May-25 | 4.252 | -20.3 |
Jun-25 | 4.193 | -26.1 |
Aug-25 | 4.055 | -39.9 |
Sep-25 | 4.027 | -42.7 |
Nov-25 | 3.963 | -49.1 |
Dec-25 | 3.950 | -50.4 |
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GILTS: A Little Weaker To Start The Week, Data & Syndication Eyed In Coming Days
Gilt trade lower alongside EGBs, although early Monday trade seems fairly non-committal.
- Familiar comments from the hawkish wing of the ECB had little impact, while UK headline flow has generally centred on political posturing ahead of Trump’s inauguration in the U.S.
- Futures last -37 at 91.30, trading as low as 91.24.
- The structural trend condition in futures remains bearish. Initial support and resistance at 90.68/91.96.
- Yields 1.5-2.5bp higher, curve marginally steeper. 2s10s and 5s30c remain below January highs.
- Spread to Bunds ~2bp wider at 214bp, sticking within the multi-week range after registering the tightest close since November on Friday.
- GBP STIRs see a modest hawkish drift alongside the move in the long end.
- BoE-dated OIS prices 62bp of cuts through year-end vs. 64bp early today/late last week.
- Next 25bp move fully discounted through March, with ~21.5bp of easing priced through Feb.
- SONIA futures 0.5-3.0 lower.
- On the lookout for the syndicated tap of the 4.375% Jan-40 gilt. Bookrunners have indicated this will likely be tomorrow’s business, in line with our own expectation.
- UK labour market data is due tomorrow, our full preview will be out later today. Flash PMIs due Friday
EGB SYNDICATION: France: 15-year OAT Mandate
"The REPUBLIC OF FRANCE has mandated BNP PARIBAS, CREDIT AGRICOLE CIB, HSBC, MORGAN STANLEY and SOCIETE GENERALE to act as Joint Lead Managers on an upcoming new long 15 year OAT benchmark, due 25 May 2042. The transaction will be launched by syndication in the near future, subject to market conditions."
From market source
- MNI had pencilled in a French syndication for next week (rather than this week due to the MT/IL auction on Thursday). We had thought that May 2042 was the most likely 15-20 year OAT that would be sold and pencil in a E5-7bln transaction size. We now expect the transaction to take place tomorrow.
US TSY OPTIONS: TYH5 107.00 Puts Lifted
TYH5 107.00 puts paper paid 0-23 on 5K, taken bid over.
