GILTS: Most Of Early Rally Holds, Fiscal Situation & Gilt Remit Eyed

Gilts hold onto the bulk of their early morning rally.

• The prospect of deeper fiscal spending cuts in today’s Spring Statement (increased odds following several press reports pointing to deeper welfare/government department reductions) and slightly softer-than-expected (on net) CPI data drove this morning’s bid.
• Futures traded as high as 91.58 but have backed off to ~91.40, still ~40 ticks higher on the day.
• Our technical analyst notes that the short-term technical outlook in the contract remains bearish.
• Yesterday’s low (90.93) protects key support at the Mar 6 low (90.71).
• Key short-term resistance has been defined at 93.01, the Mar 20 high.
• Yields 3-7bp lower, curve steepens on the dovish BoE repricing following CPI.
• 2s10s still ~2.5bp below the psychological 50bp level, although 5s30s has managed to push above the 100bp mark. Next upside level of note in 5s30s is the May ’21 closing high (103.3bp).
• 10s ~4bp tighter to Bunds, spread back into 192bp.
• Dovish adjustment in GBP STIRs post-CPI.
• BoE-dated OIS shows ~46.5bp of cuts through year-end vs. ~40bp late yesterday.
• SONIA futures 1.5-9.0 firmer.
• Our full preview of the Spring Statement is here.