GILTS: Off Lows, BoE QT Decision Eyed

A bid in equities and some spillover from the presence of this morning’s EGB supply weighed on gilts, before the passage of the supply helped provide some stabilisation.

• Futures last little changed at 91.61.
• The bullish technical theme remains intact, with initial support and resistance located at 90.65 & 91.82, respectively.
• Benchmark yields within 1bp of yesterday’s close. 2s10s and 5s30s ~15bp off Sep closing highs.
• 10-Year spread to Bunds 1bp tighter at ~194bp.
• The outcome of today’s MPC meeting can be boiled down to two discrete topics: the vote surrounding the pace of APF reduction and any updates on communications and the vote surrounding Bank Rate.
• With rates seen on hold (and a 7-2 vote split expected), the biggest uncertainty and market reaction is expected around the former, with much less focus being placed upon the latter - but neither aspect should be ignored.
• If the APF decision was down to us, we would favour a target of GBP60-65bln with active sales in line with this year but with a change to the maturity buckets to re-align with the DMO. That would see short remaining at 3-7 years, medium to 7-15 years (rather than BOE’s 7-20 years) and long 15+ years (rather than 20+ years).
• Around 70% of analysts look for the decision to be between GBP60-75bln - but the range is wide from ending active sales (GBP49bln total reduction) to continuing with the total reduction of GBP100bln.
• Click for our full preview of that event.
• BoE-dated OIS showing 6.5bp of cuts through year-end, 28bp through April, market operates at hawkish end of recent range.
• We will provide scenario analysis for gilt curves in due course.