GILTS: Off Highs Around Auction, Most Of Cross-Market Outperformance Intact
The presence of this morning’s 10-Year supply seemed to limit the rally in gilts.
- Bulls were unable to breach 92.00 in futures, with the contract topping out at 91.99 ahead of the bidding deadline.
- Decent demand metrics at the auction then pushed the space back towards, but not to, session bests.
- Futures have peaked at 91.99 for now, with the contract seeing a more meaningful break above the 20-day EMA (91.81). Next resistance located at the April 8 high (92.63), although there may be some focus on April 10 low in 10-Year yields (4.616%).
- Yields 1-4bp lower across the curve, bull steepening.
- Outperformance vs. core DM peers intact (outside of U.S. 30s), with some focus on the softer elements of this morning’s labour market data (wage and payroll components).
- Dovish reaction in GBP STIRs to the data/long end rally.
- BoE-dated OIS prices just over 75bp of cuts through year-end, with 23bp of cuts discounted for next month.
- SONIA futures flat to +6.0. Last week’s highs intact across the strip.
- UK CPI data due tomorrow, with the median of the sell-side surveys that we read showing downside risks to both the BBG median and BoE expectations (our full preview is here).
- Expect macro cues to dominate between now and then.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
May-25 | 4.226 | -23.2 |
Jun-25 | 4.141 | -31.7 |
Aug-25 | 3.953 | -50.6 |
Sep-25 | 3.850 | -60.8 |
Nov-25 | 3.714 | -74.5 |
Dec-25 | 3.672 | -78.6 |
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
