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Gilts have rallied, largely on spillover from wider core global FI markets.

• The reduction of short-term French political risks and late Tuesday comments from Fed Chair Powell (pointing to further rate cuts and the potential for the end of QT in the coming months) have provided the support.
• Gilts outperform swaps following Powell’s comments.
• Futures trade as high 92.41 before fading to 92.27 last.
• Fresh extension higher would target projection resistance (92.72).
• Yields 3-4bp lower across the curve, wings underperform.
• 10s pierced support at the August 11 low (4.548%). Uptrend support drawn from the Dec ’24 low was also tested (4.536%). The next level of note below there is the August low (4.496%), which equates to 92.73 in futures today.
• 30s have broken through uptrend support drawn off the April low (5.370%) and trade ~5bp above their August low (5.309%).
• This morning’s I/L supply saw a solid cover ratio (~3.5x), but pricing was on the soft side.
• The rally further out the curve has allowed yesterday’s dovish move in GBP STIRs to extend.
• SONIA futures flat to +3.0.
• BoE-dated OIS pricing ~10bp of easing through year-end.
• BoE’s Ramsden didn’t touch on monetary policy in his morning address.
• Fellow Deputy Governor Breeden is unlikely to cover monetary policy when she speaks later.

Of note:

EURUSD 2.41bn at 1.1600.

USDJPY ~1bn at 151.50.

EURUSD 4.36bn at 1.1575/1.1600 (thu).

USDCAD ~1bn at 1.3975 (thu).

• EURUSD: 1.1600 (2.41bn), 1.1675 (375mln), 1.1700 (262mln).
• USDJPY: 151.50 (956mln).
• AUDUSD: 0.6540 (300mln), 0.6550 (491mln), 0.6575 (362mln).

Major EGB futures remain biased to the upside, with yesterday’s easing of near-term French political risks lending support. OAT futures are +32 ticks at 123.01, while Bunds are +17 ticks at 129.85. 

• A bull cycle in Bund futures remains intact, with next resistance at 130.05, a Fibonacci retracement point. Note that moving average studies have crossed into a bull-mode position, a bullish signal.
• The German curve is lightly bull flatter, with Schatz yields down 1bp and 10 to 30-year yields down 2bps. 10-year Bund yields are hovering just below the 2.60% figure. A clear break would expose 2.55% as the next downside target.
• Germany will sell E1.0bln of the 0% Aug-50 Bund alongside E1.5bln of the 2.90% Aug-56 Bund this morning,
• 10-year EGB spreads to Bunds are biased up to 1bp wider, with SPGBs and PGBs underperforming.
• Eurozone August industrial production was a little stronger-than-expected at -1.2% M/M (vs -1.6% cons), with last month’s reading also revised up to 0.5% (vs 0.3% initial). There was little market reaction.
• The remainder of today’s regional calendar includes comments from ECB’s Villeroy. He already said yesterday that if the ECB were to move again, a cut is more likely than a hike. This wasn’t surprising, in our view.