OIL: Russia Crude Prices to India Fall Amid Demand Uncertainty

The extension lower in core global FI markets pushes gilt futures closer to next support at Wednesday’s low (91.63), with the contract last trading at 91.69.

• A break there would expose Fibonacci support (91.50).
• Yields 3-5bp higher, early steepening intact/slightly extended.
• 10-Year yields traded within 0.5bp of July highs (latter located at 4.633%).
• With fiscal fragility remaining a key theme, it will be worth watching the release of the OBR’s "Fiscal Risks and Sustainability Report", which is due imminently (09:30 London).
• A reminder that this release looks at matters over the very long-term and will provide updates on the long-term costs and effects of climate change, the public balance sheet and pensions. More details in or recent bullet.

• The OBR is due to release its "Fiscal Risks and Sustainability Report" at 9:30BST this morning.
• This looks very long-term and will provide updates on the long-term costs and effects of climate change, the public balance sheet and pension (including demographics, savings rates, structure of gilt market etc).
• The last update in September noted that public spending was predicted to rise from 45% of GDP to 60% of GDP over the next 50 years with revenues remaining at 40% of GDP. This would see debt/GDP at 274% in the baseline projection by the end of the forecast. It noted that "to return debt to its pre-pandemic levels would require an average fiscal tightening of 1.5 per cent of GDP per decade over the next 50 years."
• An update for the above will be watched by markets, as will the underlying assumptions - the most important of which is that of potential productivity which at present is 1.5%. The OBR notes that "every 0.1 per cent increase in productivity growth reducing the rise in the debt-to-GDP ratio by 25 percentage points. A full 1 percentage point increase, equivalent to a return to pre-financial crisis rates of productivity growth, could keep debt below 100 per cent of GDP throughout the next 50 years."
• On changes to productivity Citi note: "The OBR made downward revisions to near-term productivity but left medium-term productivity (at the 5yr horizon) at 1.25%. The OBR’s medium-term productivity assumptions have been sticky and gravitate towards the long-term baseline. Any change to the latter in today’s FRS could hint at a downward revision to productivity in the autumn, negatively impactive fiscal headroom. Every 0.1%point change is worth about £7-8bn of fiscal headroom. Even if the long-term baseline remains at 1.5%, that won’t rule out downward revisions to productivity in the autumn given the OBR has been consistently optimistic (noting the post-GFC average is around 0.5%)."