GILTS: Off Highs After Futures Pierce Initial Resistance
Feb-26 10:38
Gilts are off highs after rallying alongside wider core global FI markets during the European morning.
- The uptick gained momentum as gilt and Bund futures broke through their respective Tuesday highs, although there was no clear headline catalyst driving the rally.
- M5 futures pierced initial resistance at the Feb 13 high (93.39), with the contract topping out at 93.51 before fading back to 93.35.
- Fresh extension higher would target the Feb 6 high & bull trigger (93.83). A break there would reignite bullish momentum.
- Yields 1.5-3.0bp lower, curve flatter.
- The 10-Year UK/German yield spread is close to its ’25 closing low (203.8bp), with a post-election increase in odds of near-term German fiscal support driving spread tightening week-to-date.
- GBP STIR pricing little changed on the day, with 57bp of cuts showing through year-end.
- ~20bp of cuts priced through May, with the next full 25bp move discounted through the end of the June MPC.
- Little of note on the UK data calendar today,
- BoE dove Dhingra will speak on “Trade fragmentation and monetary policy” from 16:30 GMT, don’t expect a change in tone after she reaffirmed her dovish stance earlier in the week (pushing back against the idea of gradual cuts given her view on consumption).
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.447 | -0.8 |
May-25 | 4.254 | -20.0 |
Jun-25 | 4.187 | -26.8 |
Aug-25 | 4.046 | -40.9 |
Sep-25 | 3.993 | -46.1 |
Nov-25 | 3.910 | -54.5 |
Dec-25 | 3.882 | -57.3 |
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EU-BOND AUCTION RESULTS: 5/10-year EU-bonds
Jan-27 10:38
| 2.875% Oct-29 EU-bond | 3.00% Dec-34 EU-bond | |
| ISIN | EU000A3L1CN4 | EU000A3K4ES4 |
| Amount | E2.6bln | E1.902bln |
| Previous | E2.36bln | E1.896bln |
| Avg yield | 2.627% | 2.982% |
| Previous | 2.710% | 2.851% |
| Bid-to-cover | 1.53x | 1.91x |
| Previous | 1.15x | 1.59x |
| Avg Price | 101.072 | 100.143 |
| Low Price | 101.050 | 100.120 |
| Pre-auction mid | 101.033 | 100.057 |
| Prev avg price | 100.730 | 101.542 |
| Prev low price | 100.700 | 101.520 |
| Prev mid-price | 100.700 | 101.465 |
| Previous date | 04-Nov-24 | 25-Nov-24 |
GILTS: Supported By Broader Risk Off, Supply Eyed Later In The Week
Jan-27 10:34
Gilts are off session highs, with global inputs dominating thus far.
- Core global FI markets rallied as Chinese tech firm DeepSeek’s AI advances generated questions surrounding U.S. tech dominance, as well as promoting worry surrounding the high levels of planned and already deployed capex in microchips.
- Futures +48 at 92.39 last, compared to session highs of 99.60.
- Yields 2-5bp lower, 10s outperform.
- Bulls have been unable to force meaningful breaks of last week’s yield lows.
- Spread to Bunds 0.5bp wider at 206.5bp.
- BoE-dated OIS price 70bp of cuts through year-end after showing ~71.5bp at one point this morning. Last week’s dovish extreme of ~72.5bp over that horizon intact.
- We still look for cuts in February (market prices 22.5bp of cuts over that horizon) and May (~42bp of cumulative cuts showing through that meeting).
- SONIA futures flat to +6.5. SFIM6-U7 have breached last week’s highs.
- Supply provides the highlights of this week’s limited UK calendar.
- The DMO is looking to hold a tender of a sub-5-Year gilt on Thursday. We believe that the 0.125% Jan-26 gilt is the most likely candidate for issuance via that tender and pencil in a GBP1.0-2.0bln size for the transaction (greater colour surrounding our thoughts can be found in an earlier bullet).
US TSY OPTIONS: 10Yr Weekly Option
Jan-27 10:32
10yr Weekly Option, Expiry Friday:
- TY 110c, bought for '06 in 15k.
