OUTLOOK: Price Signal Summary - Gilts Remain Vulnerable
Feb-10 11:44
- In the FI space, Bund futures are trading closer to their recent lows. The contract has this week breached support at 136.38, the Jan 30 low and this has strengthened the current bearish cycle. The focus is on 135.08 next, the Jan 4 low. Moving average studies are in a bear-mode position, reinforcing current conditions and highlighting bearish sentiment. On the upside, resistance to watch is at 137.71, the 50-day EMA.
- Gilt futures are trading lower and the contract is approaching support at 104.04, the Feb 8 low. A break of 104.04 would threaten the recent bull theme and highlight a short-term top. This would expose 103.94 initially, the 50-day EMA and a key support. Initial resistance is seen at 105.67, the Feb 9 high where a break is required to ease the current bearish threat. This would also signal a short-term reversal.
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GILTS: Curve flattens as terminal rate moves lower and FinStab sales are strong
Jan-11 11:44
- Gilts today have been pulled higher by two aspects: first they have been pulled higher from a reduction in terminal pricing globally following less hawkish-than-usual comments from ECB's Holzmann. Second, there has been continued (but slow) follow through from yesterday's BOE Financial Stability sales operation in which the vast majority of remaining gilts bought for the "temporary" programme have now been sold back to the market.
- 2y yields down -4.5bp today at 3.403%, 5y yields down -8.3bp at 3.374%, 10y yields down -9.0bp at 3.465% and 30y yields down -10.6bp at 3.798% as the curve flattens: 2s10s is 4.6bp flatter today at -0.1.bp and while 10s30s is 1.6bp flatter at 33.3bp.
- Yesterday's BOE Financial Stability Portfolio sales saw huge takeup. In nominal terms only GBP210mln of long-dated gilts (of which GBP180mln is the 0.875% Jan-46 gilt) and GBP363mln of linkers (of which GBP169mln is the 1.25% Nov-27 I/L gilt) remain to be sold. This compares to initial nominal holdings of GBP17.2bln for longs and GBP6.1bln for linkers.
- Another Financial Stability Portfolio sales operation is due to be held today (results shortly after 15:30GMT) and it is now just a matter of time before the Bank will have completely unwound its holdings.
- Looking ahead, we will hear from external MPC member Catherine Mann tomorrow as she is due to give a lecture at the Manchester Business School on Thursday entitled “Challenges facing the UK economy, challenges facing monetary policy: a comparative look.” There is no text due to be released from the event, and Mann was the sole hawkish dissenter in December looking for a 75bp hike, so even if she still sounds hawkish it would not necessarily be a concern for the market. It might be more significant if she was to sound less hawkish, however.
- We also have November activity data due for release on Friday (including monthly GDP).
UK: Conservative MP Loses Whip As PM Sunak Prepares To Host Japanese PM
Jan-11 11:44
Busy day politically in the UK as PM Rishi Sunak faces PMQs at the top of the hour, followed by a meeting with Japanese PM Fumio Kishida to sign a defence agreement that will allow the deployment of troops in one another's nations, allowing for sizeable joint military exercises to take place.
- No 10 Downing St has called the pact "the most important defence treaty between London and Tokyo since 1902", while Sunak stated ahead of the meeting that the agreement would "cement the UK's commitment to the Indo-Pacific".
- Beforehand, Sunak faces difficult PMQs, with widespread industrial action showing no sign of slowing down. Indeed, stories emerging yesterday of trade unions from across sectors potentially seeking to coordinate strike days in major 'days of action' in order to pressure gov't further on increasing pay offers. Livestream: https://www.youtube.com/watch?v=ynAYEZi7114
- Sunak could also face questions on former Conservative-now independent MP Andrew Bridgen, currently suspended from the Commons due to breaching rules on lobbying and declaring interests.
- Chief Whip Simon Hart has confirmed that Bridgen has had the Conservative party whip withdrawn due to midleading tweets regarding the COVID-19 vaccine. Hart stated that 'Misinformation about the vaccine causes harm and costs lives. I am removing the Whip from Andrew Bridgen with immediate effect, pending a formal investigation', adding that Bridgen had "crossed a line, causing great offence in the process".
US TSYS: Bull Flattening With 10Y Supply Headlining Otherwise Light Docket
Jan-11 11:43
- Cash Tsys have set about unwinding yesterday’s bear steepening with a bull flattening today, with major benchmark yields broadly in the middle of yesterday’s ranges across the curve at typing. Fed expectations are little changed and a lack of data and Fedspeak could leave flow or headlines as a main driver until the 10Y auction, albeit in tomorrow’s CPI shadow (full preview here).
- On the 10Y reopen, JPM noted late yesterday that with intermediate Treasuries looking rich to fair value and our Treasury Client Survey showing the most net longs in three months, demand is likely to remain muted and require a further concession from current levels.
- 2YY -1.3bps at 4.235%, 5YY -3.8bps at 3.692%, 10YY -4.6bps at 3.572% and 30YY -5.7bps at 3.697%.
- TYH3 trades 9+ ticks higher at 114-09+, moving further off yesterday’s low of 113-26+ (with support at the 50-day EMA of 113-12) but below resistance at Monday’s high of 114-23+.
- Data: MBA weekly mortgage apps/rates (1200ET)
- Bond issuance: US Tsy $32B 10Y Note reopen (91282CFV8) – 1300ET
- Bill issuance: US Tsy $36B 17W bill auction – 1130ET
