GILTS: Income Tax U-turn Speculation Steepens Curve
Gilts bear steepen vs. yesterday’s close.
- Multiple source reports suggesting that Chancellor Reeves will not deploy income tax hikes drove a sharp sell off at the open (despite some offsetting measures being outlined), as the market became worried that she would not be able to deliver a credible Budget in just under two weeks.
- BBG sources then suggested that the move was facilitated by improved OBR forecasts (with other factors partially offsetting the productivity downgrades), providing a limited relief rally for UK paper.
- Still, the uncertainty triggered by Reeves’ apparent u-turn on income take hikes has dominated when it comes to price action.
- Futures traded as low as 92.07 (breaking the 50-day EMA), before recovering to ~92.60 last, -80 on the day.
- Next support of note located at the September 11 high (91.82).
- Meanwhile, bulls need to retake the 20-day EMA (93.16).
- Yields 4-10bp higher, curve steeper. Fresh November highs registered across the curve.
- At one stage 10-Year yields were on track for the biggest one-day move since July 2. A reminder that the move on July 2 was driven by questions over the UK’s fiscal outlook and the future of Chancellor Reeves after an appearance in the House of Commons.
- SONIA futures 0.25-9.0 lower, off session lows. BoE-dated OIS 1-5bp less dovish; 19bp of easing priced for December, 27bp through February, 37bp through March and 46bp through April.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.780 | -19.0 |
Feb-26 | 3.697 | -27.3 |
Mar-26 | 3.602 | -36.7 |
Apr-26 | 3.505 | -46.4 |
Jun-26 | 3.467 | -50.2 |
Jul-26 | 3.421 | -54.8 |
Sep-26 | 3.407 | -56.2 |
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US TSY FUTURES: Mix Of Short Cover & Long Setting On Tuesday
OI data points to a mix of net short cover and long setting as Tsy futures rallied on Tuesday.
- Net short cover in US futures provided the most meaningful net positioning adjustment (~$5.7mln DV01 equivalent), tilting the curve-wide positioning swing in that direction.
| 14-Oct-25 | 13-Oct-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,589,469 | 4,613,433 | -23,964 | -934,901 |
FV | 6,693,393 | 6,718,630 | -25,237 | -1,104,588 |
TY | 5,410,066 | 5,395,260 | +14,806 | +1,006,011 |
UXY | 2,466,290 | 2,452,629 | +13,661 | +1,244,858 |
US | 1,880,889 | 1,924,764 | -43,875 | -5,694,897 |
WN | 2,065,293 | 2,059,001 | +6,292 | +1,203,809 |
|
| Total | -58,317 | -4,279,708 |
OPTIONS: Expiries for Oct14 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1450(E537mln), $1.1500(E848mln), $1.1600(E663mln), $1.1650(E636mln)
- USD/JPY: Y151.50($691mln), Y152.00($751mln)
- AUD/USD: $0.6500(A$1.0bln), $0.6580-00(A$1.2bln)
- USD/CAD: C$1.4000-10($598mln)
US 10YR FUTURE TECHS: (Z5) Sights Are On The Bull Trigger
- RES 4: 114-10 High Apr 7 (cont.)
- RES 3: 114-00 Round number resistance
- RES 2: 113-29 High Sep 11 and the bull trigger
- RES 1: 113-17+ High Oct 14
- PRICE: 113-14 @ 11:10 BST Oct 15
- SUP 1: 112-26 20-day EMA
- SUP 2: 112-16/01 50-day EMA / 50.0% of Jul 15 - Sep 11 upleg
- SUP 3: 111-26 Low Aug 26
- SUP 4: 111-13+ Low Aug 18 and a key support
Treasuries are holding on to this week’s gains and a bullish theme remains intact. Last Friday’s climb resulted in a break of the 113-00 handle, signalling scope for stronger rally towards 113-29, the Sep 11 high and a bull trigger. Clearance of this hurdle would confirm a resumption of the M/T uptrend. Support at the 50-day EMA at 112-16 remains intact for now. A clear break of the average would expose 111-13+, the Aug 18 low and a key support.
