GILTS: Little Changed, S&P Still Cautious On UK Fiscal Outlook

Gilt futures trade either side of late Thursday levels following mixed national level inflation data from Europe. Contract +9 at 91.59.

• The post-Budget rally in the contract has strengthened a bullish technical theme. Initial support and resistance located at 90.53 at 91.93, respectively.
• Yields within 0.5bp of closing levels.
• Curves stabilise around round numbers after Wednesday’s post-Budget flattening, 2s10s ~70bp, 5s30s ~130bp, following failure to break above 80bp and 145bp in recent weeks.
• Late on Thursday S&P warned that UK public finances remain constrained despite the measures outlined in the Budget, deeming the UK’s fiscal position to be “vulnerable” and a key constraint on the UK’s credit rating. The rating agency also highlighted risks to the fiscal consolidation plan, particularly towards the end of the forecast horizon.
• This mirrors ideas that we have outlined in our own work, with questions surrounding the likelihood of backloaded fiscal tightening being implementing trimming the post-Budget rally in gilts on Thursday.
• External cues limited by the technical issues on the CME, which has halted U.S. Tsy futures trade for the best part of 6 hours.