GILTS: Holding Steeper Into The Weekend

Gilts have generally tracked moves in wider core global FI over the last couple of hours but continue to hold wider vs. Bunds further out the curve following this morning’s PSNB data.

• A downtick in European equities has provided some support.
• Futures registered a fresh session low of 90.67 before recovering to ~90.90, leaving the September 5 low (90.65) untouched. Similarly, 10-Year yields continue to respect the September 5 high (4.716%).
• Yields are little changed to 2.5bp higher, curve steeper.
• The latest PSNB figures revealed further fiscal deterioration (largely driven by a lower VAT take and increased local government borrowing), weighing on the long end of the gilt curve and GBP FX, proving more consequential for markets than yesterday’s BoE decision.
• With fiscal matters remaining of utmost importance ahead of the November Budget (which is likely to be the biggest domestic event of the year), along with growing suggestions that the OBR is set to mark its productivity forecasts lower, it is worth reminding that an LBS professor looked at potential methods to boost productivity measures in a recent interview with our policy team.
• Elsewhere, our macro team has written that today's fiscal data increases the probability of the government having to break its manifesto commitment not to raise income tax.
• BoE-dated OIS prices ~6bp of easing through year-end after threatening to break through 5bp earlier today.
• SONIA futures flat to -2.5. SFIZ5 has printed fresh multi-month lows over the past couple of sessions, but SFIZ6 hasn’t challenged its September low.
• Flash PMI data headlines next week’s UK data calendar, with comments from BoE’s Bailey, Pill & Greene also scheduled.