GILTS: Off Highs, Curve Twist Flattens

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Gilts remain underpinned after drawing support from softer-than-expected wage data and a larger-than-expected fall in payrolled employees.

• Downticks in e-minis and European equity indices provided further support (but lacked an overt driver), even with the FTSE 100 benefitting from a softer GBP.
• Gilt futures traded as high as 92.66 before fading back to ~92.50, adding more than 70 ticks vs. yesterday’s settlement.
• Initial resistance located at the June 5 high (92.63) has been pierced, with bulls now looking to a Fibonacci resistance point (92.79).
• Yields 5-7bp lower, 10s outperform on the curve.
• 2-Year yields set for the lowest close seen since May 9, while 10s and 30s trade below their respective closes from the same day.
• 2s10s holds above 60bp, with recent moves below that level limited in scope and short-lived.
• 5s30s trade around 120bp after the recent run of closes below the level.
• GBP STIRs now fully discount the next 25bp cut come the end of the September MPC, with 48bp of cuts showing through year-end (vs. 41bp late yesterday). Labour market data drives things there.
• Books on the 1.75% Sep-38 I/L gilt syndication are closed, with demand nearing ~GBP60bln ~15 minutes before books closed (per bookrunners).
• Macro matters are set to dominate for the rest of the day, with domestic inputs (comments from BoE’s Saporta & the government spending review) set to come back to the fore tomorrow.