GILTS: Light Bear Steepening
Gilts are lower but within this week’s ranges, with a modest mark higher in final French CPI data, a reaffirmation of ECB Executive Board member Schnabel’s hawkish stance and ongoing discussions surrounding the UK’s fiscal fragility applying some weight.
- No real insulation from the softer-than-expected domestic GDP M/M data, 10s vs. Bunds essentially flat at ~189bp.
- A reminder that upward revisions to March data left the 3m/3m GDP measure above consensus, limiting any dovish move.
- Our macro team noted that overall, there's not a lot in the data to drive market reaction.
- Gilt futures trade as low as 91.67.
- Bears remain in technical control, initial support and resistance at 91.42/92.19, respectively.
- Yields 2.0-3.5bp higher, curve steeper.
- 2s10s and 5s30s remain below multi-week highs registered earlier in the week.
- GBP STIRs flat to a little more hawkish on the day.
- ~51.5bp of BoE cuts priced through Dec, with over 80% odds of the next 25bp cut priced through August and such a move more than fully discounted through September.
- SONIA futures +0.5 to -2.0, strip twist steepens.
- Little of note on the UK calendar for the remainder of the day, leaving focus on macro/cross-market cues.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 4.004 | -21.3 |
Sep-25 | 3.945 | -27.2 |
Nov-25 | 3.780 | -43.7 |
Dec-25 | 3.702 | -51.5 |
Feb-26 | 3.575 | -64.2 |
Mar-26 | 3.544 | -67.3 |
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GILTS: Weaker & Steeper Ahead Of Spending Review
Gilt futures have broken yesterday’s base, trading as low as 92.20.
- Bears look to close yesterday’s opening gap higher (92.00) after bulls forced their way through a cluster of resistance levels on Tuesday.
- The early weakness came as core global FI moved lower, which seemed to be based on a mix of global supply pressure (including a 10-Year gilt auction) and some optimism re: Sino-U.S. trade talks.
- 10-Year supply saw average demand metrics.
- Markets were unmoved by a Chinese statement that failed to reveal any meaningful trade commitments with the U.S.
- Yields 3-6bp higher, bear steepening after yesterday’s labour market data-driven bull steepening.
- 10-Year yields remain above long-term uptrend support drawn off the Dec ’21 lows (4.522% today).
- 30-Year yields closed below long-term uptrend support drawn off their own Dec ’21 lows yesterday (a redrawn support line to account for yesterday’s move comes in at 5.242% today).
- 2s10s nears 65bp, after failing to extend meaningfully below 60bp during breaks in recent sessions.
- 5s30s ~5bp off last week’s multi-week closing low, last ~123bp.
- SONIA futures flat to -3.0. BoE-dated OIS showing 47bp of cuts through year-end vs. closer to 50bp at yesterday’s close.
- Chancellor Reeves will present the spending review from ~12:30 London.
- The release will likely reaffirm the UK’s fiscal fragility (perhaps factoring into this morning’s weakness) and is laden with political risk.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Jun-25 | 4.206 | -0.7 |
Aug-25 | 4.022 | -19.1 |
Sep-25 | 3.965 | -24.7 |
Nov-25 | 3.815 | -39.8 |
Dec-25 | 3.743 | -47.0 |
Feb-26 | 3.640 | -57.2 |
Mar-26 | 3.616 | -59.7 |
PORTUGAL AUCTION RESULTS: OT Results
| 0.90% Oct-35 OT | 3.625% Jun-54 OT | |
| ISIN | PTOTENOE0034 | PTOTE3OE0025 |
| Amount | E677mln | E490mln |
| Previous | E522mln | E3bln |
| Avg yield | 3.003% | 3.785% |
| Previous | 3.632% | 3.678% |
| Bid-to-cover | 1.79x | 2.39x |
| Previous | 2.96x | |
| Avg Price | 81.550 | 97.220 |
| Pre-auction mid | 81.453 | 96.698 |
| Prev avg price | 73.670 | 99.043 |
| Prev mid-price | 73.245 | |
| Previous date | 13-Sep-23 | 22-May-24 |
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