GILTS: Off Highs, Curve Twist Flattens

Jul-10 09:40

Bulls managed to close yesterday’s opening gap lower in futures, with the contract topping out at 92.19 before a fade back below 92.00.

Bears are in technical control, bulls need to break the 20-day EMA (92.45).
Yields 1bp higher to 2p lower. Curves flatter as the pullback from multi-week highs in 2s10s and 5s30s extends.
Late Wednesday rally in Tsys (auction & tariff-related) provided the initial bid.
Bunds and Tsys have faded from Asia highs, limiting the rally in gilts to some degree.
Little in the way of major UK news flow this morning.
A lagged/partial ONS update on PPI data has had little impact (see earlier bullet for greater detail there).
Most benchmark UK yields, as well as short and medium-term forward rates, continue to trade somewhere between the lows and mids of the ranges witnessed since early April.
Ongoing worry surrounding an already tepid UK growth outlook, the growing risk of further tax hikes and a slightly more dovish market outlook for the BoE anchor those rates.
20+-Year gilt yields provide the exception to the theme, last operating between mids and highs seen over the same period. Local and global fiscal factors have steepened curves multi-week.
GBP STIRs are little changed on the day, 52bp of BoE cuts priced through Dec.
BoE’s Breeden will speak on “Weathering the storm: stability in a changing climate’” this evening (text 16:00, speech 18:45).

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Jun-10 09:38

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.

BoE Meeting	SONIA BoE-Dated OIS (%)	Difference vs. Current Effective SONIA Rate (bp)
Jun-25	4.208	-0.3
Aug-25	4.019	-19.3
Sep-25	3.957	-25.5
Nov-25	3.800	-41.2
Dec-25	3.730	-48.2
Feb-26	3.629	-58.3
Mar-26	3.606	-60.6

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