JAPAN: SOUTH KOREA-Lee: Japan 'Indispensable Partner' For Econ Ahead Of Visit

Gilts trade away from lows after support in futures held and with oil prices edging lower. Still, yields are higher across the curve in the wake of this morning’s firmer-than-expected CPI reading.

• Gilt futures last -16 at 91.41 vs. session lows at 91.17. June 2 low (91.16) provides key support.
• Yields 1.5-2.5bp higher, 5s under the most pressure.
• 2s remain rangebound.
• 10s briefly pierced the June 9 high (4.673%).
• STIRs price around ~50bp of cuts through year-end, with over 80% odds of the next cut priced through August. Market priced ~58bp of cuts through year-end at one stage on Monday.
• A reminder that while the UK CPI data was firmer-than-expected it wasn’t too out of line vs. BoE expectations.
• That means that the market remains comfortable with discounting a once per quarter rate cutting cycle through year end, given the softening labour market and still stagnant economic growth.
• What’s more, BoE Governor Bailey’s weekend comments were dovish and centred on the labour market, which increases the importance of tomorrow’s labour market data release.
• The 4.50% Sep-34 gilt PGT saw solid enough demand and pricing metrics but wasn’t quite as well-received as yesterday’s PGT.
• Little of note on the UK calendar for the remainder of the day, leaving focus on U.S. PPI data and any ongoing reaction to the domestic CPI print.