GILTS: Recovery From GDP-Driven Lows Extends As Energy Prices Soften
Gilts consolidate their recovery from opening lows.
- Lower crude oil prices (linked to Trump’s desire for a resolution surrounding the Ukraine-Russia conflict and Hamas seemingly agreeing to stick to the agreed hostage release schedule) helped bonds recover.
- This came after hawkish leaning comments from BoE chief economist Pill and firmer-than-expected UK GDP data weighed. Neither of those were gamechangers for the BoE, at least in our opinions.
- Futures +29 at 92.74 (92.36-78 range).
- Yesterday’s low (92.31) went untested during the early weakness and provides initial minor support. The recent bullish technical cycle in the contract remains in play.
- Yields within 1bp of yesterday’s closing level, curve twist flattens.
- 10s spreads vs. Bunds 1bp wider at ~207.5bp.
- GBP STIRs also unwound some of the initial hawkish reaction as gilts recovered.
- BoE-dated OIS prices 56.5bp of cuts through year-end vs. ~52.5bp at one stage following the GDP data and ~60bp at yesterday’s close.
- 3.5bp of cuts priced for March, 23bp through May and 30.5bp through June (we still look for the next cut to come in May).
- SONIA futures -1.5 to +0.5.
- U.S. data and geopolitical matters should dominate for the remainder of the day, with little of note left on the UK calendar.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.420 | -3.5 |
May-25 | 4.222 | -23.2 |
Jun-25 | 4.150 | -30.4 |
Aug-25 | 4.003 | -45.2 |
Sep-25 | 3.972 | -48.2 |
Nov-25 | 3.902 | -55.2 |
Dec-25 | 3.889 | -56.5 |
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GERMAN AUCTION RESULTS: New 2.40% Apr-30 Bobl
| 2.40% Apr-30 Bobl* | Previous | |
| ISIN | DE000BU25042 | DE000BU25034 |
| Total sold | E5bln | E4bln |
| Allotted | E3.793bln | E3.35bln |
| Avg yield | 2.42% | 2.04% |
| Bid-to-offer | 1.91x | 1.45x |
| Bid-to-cover | 2.52x | 1.73x |
| Average Price | 99.87 | 102.09 |
| Low acc. Price | 99.86 | 102.08 |
| Pre-auction mid | 102.059 | |
| Previous date | 26-Nov-24 |
US-RUSSIA: Russia Will Wait For 'Concrete Peace Initiatives' From Trump, Lavrov
Russian Foreign Minister Sergei Lavrov told reporters that Russia will “study” US President-elect Donald Trump’s peace initiatives on Ukraine, “when he takes office,” another signal that a meeting between Trump and Russian President Vladimir Putin may not take place in the early period of Trump’s second term.
- Lavrov added, per Reuters: “We will wait for concrete peace initiatives on Ukraine.”
- Moscow appears to be adopting a wait-and-see strategy on Trump talks, with the Trump team managing expectations that a resolution to the conflict can be achieved within the first 100 days of the administration.
- The final days of the Biden administration have seen a push to strengthen Kyiv’s negotiating position, hitting Moscow with sweeping sanctions on Russia’s energy sector and surging military hardware to assist with fortifying Ukrainian control of Russia’s Kursk region.
- Lavrov also addressed Trump’s comments on Greenland: “People of Greenland should be listened to first.” The Greenland comments are among the most geostrategically important of Trump's recent hawkish statements considering Moscow’s established presence in the Arctic and China’s self-declared status as a ‘near-Arctic state’, via which Beijing likely seeks greater influence over Arctic governance. Both will have long-term implications for hydrocarbon and mineral rights, navigation, and military predominance.
- The Arctic Institute think tank noted this week: “Russian political experts suggest that the likelihood of Trump getting involved in a conflict with NATO allies over Greenland is low...” However, a renegotiated US-Greenland military accord could degrade Russia's long-term influence in the Arctic.
EURGBP TECHS: Bull Cycle Remains In Play
- RES 4: 0.8494 High Aug 26 ‘24
- RES 3: 0.8471 61.8% retracement of the Aug 8 - Dec 19 downleg
- RES 2: 0.8448 High Oct 31 and reversal trigger
- RES 1: 0.8424/29 50% of the Aug 8 - Dec 19 downleg / Intraday high
- PRICE: 0.8420 @ 10:30 GMT Jan 14
- SUP 1: 0.8321/8284 50-day EMA / Low Jan 8
- SUP 2: 0.8263 Low Dec 31
- SUP 3: 0.8223 Low Dec 19
- SUP 4: 0.8203 Low Mar 7 2022 and a major support
EURGBP maintains a firmer tone. The cross has cleared the December highs. This undermines the recent bearish theme and suggests scope for a stronger short-term recovery. Note too that 0.8376, the Nov 19 high and a key resistance, has also been cleared. Sights are on 0.8424, a Fibonacci retracement. It has been pierced, a clear break of this level would open 0.8448, the Oct 31 high. Support at the 50-day EMA is at 0.8321.
