GILTS: Pullback From Highs Extends After NFPs, BoE Eyed Next Week
The pullback from session highs in gilts has extended in the wake of the NFP release, although outperformance vs. Bunds still sticks, with the spread just above 195bp. set for the tightest close since early April.
- Futures as low as 93.18, yesterday’s base at 93.16 is untested at this stage.
- Yields now flat to 3bp higher vs. yesterday’s close, with the long end under the most pressure.
- 10s are comfortably back above trendline support drawn off the December ’21 low (4.420% today), last 4.485%.
- Curves are slightly steeper on the week but failed to test year-to-date highs.
- BoE-dated OIS is now little changed to ~2bp more hawkish on the day across ’25 meetings.
- A cut at next week’s decision is still fully discounted, with ~93.5bp of easing showing through year end (over 100bp of cuts were priced yesterday afternoon).
- There was little in the way of UK-specific drivers to move GBP markets this week, with much of the domestic focus centred on next week’s BoE decision and the latest political developments (ReformUK’s local and byelection performance is unlikely to move the needle at this stage).
- We have outlined some potential dovish tweaks to the BoE’s guidance. A change in tone may come as soon as next week.
- Cross-market inputs mean that dovish expressions that we previously identified (GBP 1y1y & SONIA M5/M6 flatteners) performed this week, although the hawkish adjustment in USD rates ahead of the weekend saw those moves trimmed.
- A reminder that UK markets are closed on Monday as the country observes a Bank holiday.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
May-25 | 4.204 | -25.5 |
Jun-25 | 4.075 | -38.4 |
Aug-25 | 3.869 | -58.9 |
Sep-25 | 3.727 | -73.2 |
Nov-25 | 3.568 | -89.1 |
Dec-25 | 3.522 | -93.6 |
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BUNDS: Selling Off On Report Of EU Growth Shock Mitigation Action
Bunds sell off as BBG sources suggest that “the European Union is preparing a package of potential emergency measures to support parts of its economy that could be hit the hardest by US President Donald Trump’s sweeping tariffs”.
- The attempted mitigation of at least some of the growth shock that would stem from the U.S. tariffs is the driver here.
- Bund futures now ~40 ticks off session highs.
- Note that key support in 10-Year yields (2.654%) held for a third consecutive day.
STIR: ECB & BoE Pricing Off Dovish Session Extremes As Stocks Rally From Lows
EUR & GBP STIRs off dovish session extremes but still a couple of bp more dovish on the day when it comes to end ’25 implied rate pricing.
- ECB-dated OIS shows ~63bp of cuts through year-end, while BoE-dated OIS shows ~53bp of cuts over the same horizon, comfortably within multi-week ranges.
- The recent rally in equities has removed some of the dovish repricing seen through the London morning & early NY trade, but tariff uncertainty still lingers, limiting the scope of the pullback.
UK: Reeves-Won't Need A Repeat Of Tax-Raising Budget 'On Scale Of Oct 2024'
Chancellor of the Exchequer Rachel Reeves speaking in a House of Commons select committee hearing regarding last week's Spring Statement. Livestream here. Asked by opposition Conservative MP John Glen whether she can rule out raising taxes in the October Budget, Reeves says that she will 'not need to repeat' the scale of tax rises that was seen in the 2024 budget.
- Regarding the upcoming imposition of US 'reciprocal tariffs', Reeves says "I do believe in free trade" and claims "the UK does have balanced trade with the US." Says "We do not want to see trade barriers go up but fall...not just with the US...but the EU, India and other countries..."
- Asked whether the UK will impose retaliatory tariffs, says "Let's first see how other countries respond...Big UK exporters don't want gov't to rush into a response." Regarding the UK's stance on US tariffs, which has been seen as less combative than the EU, says "We do not want to do anything that will undermine an economic agreement with the US...We are not going to rush into action to get a quick headline."
- Reeves: "Specific tariffs on the UK are less relevant than the global demand picture...Even if [a deal] with the US is possible, it does not mean we are out of the woods."
- Says she understands the US' position with regard to its trade balance, but that the UK is not the root cause of this.
