GILTS: Still Bull Flattening On The Day, Futures Within Yesterday's Range
Oct-10 09:34
Gilts remain underpinned, with political news flow out of Japan supporting wider core global FI markets.
- Domestic support comes from the latest REC-KPMG report on jobs, which continued to point to increasing slack within the UK labour market.
- Futures last +28 at 90.74, holding within yesterday’s range after gapping higher at the open.
- Bears remain in technical control, initial support and resistance (90.26 & 91.08) untouched.
- Yields 1.5-4bp lower, curve flatter.
- 10-Year yields around the middle of their multi-week 4.60-4.80% closing range, ~4.71% last.
- NIESR has suggested that Chancellor Reeves should break her promise not to raise taxes on working people in next month's budget, pointing to an increase in income tax.
- We have previously outlined methods that the government could deploy if it chooses to break its manifesto promises:
- SONIA futures flat to +2.5 given the bid further out the curve. BoE-dated OS continues price less than 5bp of BoE easing through year-end, which we think underestimates the odds of a Q4 rate cut.
- Little of note on the UK calendar ahead of the weekend, which will leave cross-market cues & U.S. UoM survey data at the fore.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Nov-25 | 3.960 | -0.7 |
Dec-25 | 3.924 | -4.4 |
Feb-26 | 3.822 | -14.5 |
Mar-26 | 3.787 | -18.0 |
Apr-26 | 3.709 | -25.9 |
Jun-26 | 3.687 | -28.1 |
Jul-26 | 3.639 | -32.8 |
Sep-26 | 3.628 | -33.9 |
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EGB SYNDICATION: Luxembourg New 10-Year Sep-35 LGB: Final terms
Sep-10 09:32
- Spread set at MS + 30bp (Guidance was MS+35bps area then revised to MS+32bps area )
- Size: E2.5bln (MNI pencilled in a transaction size of E1.00-1.75bln so this is larger than we expected)
- Books in excess of E18bln ex JLM interest
- Maturity: 17-September-2035
- Settlement: 17-September-2025 (T+5)
- ISIN: LU3182454440
- Bookrunners: BofA / BCEE / CACIB / DB / SG (B&D)
- Timing: Books to close at 11:00BST / 12:00CET
From market source / MNI colour
GILTS: Curve Bear Flattens After Initial Rally Fades
Sep-10 09:31
{GB} GILTS: Gilt futures are little changed after an early bid related to wider demand in core global FI & weakness in equities faded.
- Contract last +5 at 91.41.
- Initial support and resistance 90.65/91.66, corrective bullish phase remains in play.
- Yields flat to 3bp higher as the curve bear flattens.
- UK news flow remains centred on fiscal matters ahead of the late November Budget as PM Starmer reportedly assembles a “Budget Board” focused on pro-growth policies, while Chancellor Reeves has reportedly limited Cabinet colleague access to the Treasury’s emergency funds ahead of the Budget.
- This morning’s GBP4.0bln 4.00% Oct-31 gilt sale saw strong demand, no wider market reaction to note and the front end/belly didn’t see any relief rally.
- GBP STIRs little changed. BoE-dated OIS shows ~10bp of easing through year-end after printing below 8bp in recent sessions.
- Little of note on the UK data calendar until Friday’s monthly economic activity readings.
- That will leave wider macro and geopolitical developments at the fore for much of today, with U.S. PPI data providing the key scheduled risk event and fallout from the Russian drone incursion into Poland eyed.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Sep-25 | 3.976 | +0.6 |
Nov-25 | 3.919 | -5.1 |
Dec-25 | 3.868 | -10.2 |
Feb-26 | 3.758 | -21.2 |
Mar-26 | 3.720 | -25.1 |
Apr-26 | 3.647 | -32.3 |
FOREX: Risk-Off Phase Short-lived Despite Higher Geopolitical Tensions
Sep-10 09:27
- Incursion of Russian drones into Polish airspace have dominated headline flow and market sentiment so far Wednesday. Poland's government have triggered NATO's Article 4 in response - meaning NATO consultations are set to get underway to assess the risks and threats after Poland shot down several drones.
- Given this morning's incursion represents the most serious breach of air defences since the beginning of the Ukraine war, risk sentiment dipped through the European open - albeit only briefly. EUR/USD edged through the overnight lows of 1.1690 as the USD rallied - although haven currencies (JPY, CHF) saw only minimal gains. With Article 4 triggered - the path for de-escalation is relatively clear - allowing markets to correct back to neutral levels.
- That said, oil-tied FX are on the front-foot as WTI and Brent crude futures correct higher on geopolitical risk. This is compounding strength in the NOK on the back of the higher-than-expected underlying Norwegian CPI print (3.1% Y/Y vs. Exp. 2.9%). As a result, EUR/NOK trades heavy and clear of the September lows. The cross has shown through 61.8% retracement for the upleg posted off the June low, opening next support into 11.5416.
- PPI data marks the first inflation salvo this week, with markets expecting PPI to slow on a monthly basis, but hold first on a Y/Y, final demand basis. The PPI release may take on greater importance than usual given it comes ahead of tomorrow's CPI - both of which feed directly in to the Fed's PCE inflation gauge and could prove decisive for the September FOMC meeting and the scale of any potential easing. Both the Fed and ECB remain inside their media blackout periods, meaning we're unlikely to get much policy-relevant commentary following the PPI print.
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