CHILE: Producer Prices Fall 0.8% M/m In November

Treasuries have slowly bull flattened since the late cash open after a Japan holiday, starting the Thanksgiving-trimmed week on a cautious note. Volumes are heavily boosted by the quarterly roll whilst today’s docket should see the Chicago Fed’s unemployment rate advance nowcast for November in data focus before 2Y supply later on. 

• Cash yields are 0-2.5bp lower, with curves flattening away from last week’s recent steeps including 5s30s at 107.4bps off a high of 110.4bp.
• TYZ5 has edged higher to 113-09+ (+01+) overnight, holding off Friday’s latest high of 113-14. Volumes look elevated at 435k but we estimate more than half of that is roll-related.
• Last week’s gains reinforced a bullish theme with scope for a climb to 113-18+ (Oct 28 high) after which lies 113-29 (Oct 22 high). Key support to watch meanwhile is 112-06 (Sep 25 low) with first support at 112-11+ (100-dma).
• Data: Chicago Fed labor indicators Nov advance (0830ET), Dallas Fed mfg Nov (1030ET), Annual revisions to IP (1200ET)
• Fedspeak: None scheduled
• Coupon issuance: US Tsy $69B 2Y Note auction - 91282CPL9 (1300ET). Last month’s 2Y auction almost came in on the screws whilst bid-to-cover firmed from 2.51 to 2.59.
• Bill issuance: US Tsy $86B 13W & $77B 26W bill auctions (1130ET)
• Politics: Trump signs Executive Order (1600ET)

3. Headroom: Expected to be increased from the GBP9.9bln seen in both the October 2024 Budget and March 2025 Sprin Statement. GBP15bln is probably the modal expectation here after recent media reports, but there are still some hopes for GBP20bln. Whether higher headroom is seen as a positive for the market partly depends on whether it is accompanied by a larger-than-expected increase in the remit.

4. Remit: Expectations centre around an GBP8bln increase in the gilt remit to around GBP307bln (expectations range from an unchanged GBP299.1bln to an increase of almost GBP20bln to GBP317.7bln). Relative to other Budget’s this is actually a pretty narrow range and also a relatively small change. For the curve, it will be important whether there are reductions centred around the long-dated bucket or not. Expectations here range from reductions to as low as GBP27.0bln or increases to GBP36.2bln (note that when adjusted for tenders it is currently GBP30.9bln). Our own expectations see increases to both the short, medium and unallocated buckets. We think there is a good chance that the long-dated syndication is cancelled and that the 15-year 5.25% Jan-41 gilt is reopened in the medium syndication instead (with a new 10-year launch in April instead). In this scenario we would expect to see some flattening of the curve – particularly from around 18-20+ years (given that we still think the Jan-41 gilt will be reopened).

5. CGNCR expectations for 2026-30: For the four fiscal years from the FY26/27 through to FY29/30 we think expectations are only for marginal changes to CGNCR. At present FY26/27 is estimated at GBP129.1bln (we think an upward revision of maybe GBP3-4bln may be expected here) while the sum of the four upcoming fiscal years is currently for GBP513.2bln. If there is more than a GBP15-20bln increase here we expect that will be seen as disappointing by the gilt market.

• On the commodity front, the downleg in Gold between Oct 20 and 28 appears to have been a correction and allowed a recent overbought condition to unwind. The recovery since Oct 28 does suggest that correction is over. Key support to watch lies at the 50-day EMA, at $3952.9. Clearance of this EMA would signal scope for a deeper retracement. The first short-term bull trigger has been defined at $4245.23, the Nov 13 high.
• The move down last week in WTI futures strengthens a bearish theme. A stronger resumption of the bear leg would pave the way for a move towards key support and the bear trigger at $55.99, the Oct 20 low. Clearance of this level would resume the downtrend. Note that it is still possible a bullish corrective cycle remains in play. Resistance to watch is $61.84, the Oct 24 high. Clearance of this hurdle would signal scope for a stronger correction.