GILTS: Off Highs As Impact Of Retail Sales Fades
Jun-20 09:40
Global cues help unwind the rally that followed the retail sales data, with oil off lows and ongoing focus on Israeli-Iran tensions.
- Futures registered a high at 93.05, leaving Wednesday’s high (93.09) and Fibonacci resistance (93.13) intact. Contract last ~92.75.
- Yields 0.5bp lower across the curve.
- 2s10s sticks to multi week range, set to close the week above 60bp, while 5s30s is set to close below 125bp after the failed break above.
- SONIA futures flat to -2.0.
- Just under 50bp of BoE cuts once again priced through December, with the next 25bp move fully discounted through the end of September (~19bp priced for August).
- An isolated retail sales release won’t be a key driver for the MPC over the longer run, but a soft run of releases would add to the dovish case, at least at the margin.
- Comments from BoE Governor Bailey were not market moving.
- The BoE will announce its Q3 APF sales schedule at 16:30 London.
- The main question here is whether there are two long dated operations in the quarter alongside one medium dated operation or will there be one operation of each bucket in the quarter. We haven't seen strong opinions on this yet.
- On the wider APF we don’t expect to see any guidance on whether or not active QT will definitely continue past the upcoming quarter nor on the potential size of the sales programme. This will not be announced until the September MPC meeting but balance sheet focus is increasing in prominence as a speech topic recently, suggesting it is on the MPC’s minds.
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GILTS: Curve Steepens, Next Support Tested In Futures
May-21 09:37
Gilts remain under pressure with bearish momentum in wider core global FI markets adding to downside impetus that followed the firmer than expected domestic CPI data.
- As we have noted elsewhere, while an element of an Easter effect was no doubt present, the CPI readings, particularly services inflation, were still firm, even when adjusting for Easter.
- Futures test next support at the April 11 low (90.47), a break would expose key support at the April 9 low (89.99).
- Yields 5-8bp higher, curve steeper.
- 2-Year yields move above the April 10 high (4.078%), peaking at 4.098%. The next upside level of note comes in at the downtrend line drawn off the January high (4.119% today).
- April 9/10 highs are unchallenged further out the curve.
- BoE-dated OIS shows 0bp of easing for next month, 11bp of cuts through August, 16bp through September, 28bp through November and 35bp through year-end.
- Contracts are little changed to 5bp more hawkish on the day.
- December MPC implied rates sit at the most hawkish level seen since April 10
- SONIA futures are 0.25-6.2bp lower.
- SFIZ5 filled the opening gap higher from April 3 before bouncing.
- Implied terminal rate pricing (proxied by SFIU6 at present) moves to 3.720% last.
- The DMO has noted that due to the ongoing market-wide Bloomberg system issues, the bidding window for this morning's auction of the 4% 2031 gilt is being extended. They expect the close time of the auction bidding window to be 11:30am, subject to Bloomberg systems issues being resolved.
- Little of note on the UK calendar for the remainder of the day outside of the auction, which will leave focus on macro inputs and continued digestion of the CPI data.
EU-BILL AUCTION PREVIEW: Bidding Deadline Postponed
May-21 09:34
"Due to global technical problems with Bloomberg, the EU postpones the deadline for today's EUB auction by 1 hour from 12:00 CEST to 13:00 CEST in order to ensure a smooth functioning of the auction."
GERMAN AUCTION RESULTS: 2.50% Feb-35 Bund
May-21 09:32
| 2.50% Feb-35 Bund | Previous | |
| ISIN | DE000BU2Z049 | |
| Total sold | E4bln | E4bln |
| Allotted | E3.052bln | E3.049bln |
| Avg yield | 2.66% | 2.47% |
| Bid-to-offer | 1.85x | 1.06x |
| Bid-to-cover | 2.42x | 1.38x |
| Avg Price | 98.61 | 100.25 |
| Low Price | 98.60 | 100.23 |
| Previous date | 23-Apr-25 |
No pre-auction midprice available.
