GILTS: Support Tested In Futures, Curve Steepens
Spillover from weakness in wider core global FI trade, aided by the delivery of the latest BoJ rate hike and ongoing weakness in the German long end, weighs on long dated gilts.
- Elsewhere, retail sales data was soft (albeit subject to pre-Budget uncertainty and Black Friday distortions), while UK public finance data came in on the soft side (gilt-negative).
- Futures test yesterday’s low (90.99), with 90.50 providing a more meaningful downside level.
- Yields 1bp lower to 3bp higher, curve twist steepens.
- Benchmark yields stick comfortably within month-to-date ranges.
- 2s10s is set for the highest close of December at current levels (77.4bp). The next upside target is located at the pre-Budget closing high (79.5bp).
- Gilt/Bunds little changed at 162.5bp after yesterday’s failed break of 160bp. There hasn’t been a sub-160bp close in the spread since July ’24.
- BoE-dated OIS prices ~38bp of easing for ’26, next 25bp move not fully discounted until the June MPC after the hawkish reaction to yesterday’s BoE decision.
- SONIA futures flat to -2.5.
- We have flagged the potential for further downside in the SONIA/Euribor Dec ’26 spread in the new year, based on relative central bank outlooks.
- Comments from BoE Governor Bailey failed to impact markets, generally reaffirming knowns/widely discussed themes.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Rate Cut-Adjusted SONIA (bp) |
Feb-26 | 3.709 | -1.6 |
Mar-26 | 3.620 | -10.5 |
Apr-26 | 3.506 | -21.9 |
Jun-26 | 3.447 | -27.8 |
Jul-26 | 3.381 | -34.4 |
Sep-26 | 3.358 | -36.7 |
Nov-26 | 3.339 | -38.6 |
Dec-26 | 3.344 | -38.1 |
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GILTS: CPI-Driven Rally Fades
Gilts have moved away from session highs alongside core global FI peers, with e-minis off session lows.
- Gilt futures -11 at 92.22.
- Initial support and resistance located at 91.94 and 92.85, with our technical analyst deeming the recent pullback to still be corrective in nature at this stage.
- Yields flat to 1.5bp lower, curve steeper.
- 2s10s is through October closing highs, next upside level of note at the September 2 year-to-date closing high (81.63bp).
- The presence of this morning’s supply will have factored into the move off highs, with the GBP4.5bln sale of the 4.75% Oct-35 line ultimately generating results that were broadly in line with October’s 10-Year offering i.e. not standout but not particularly weak.
- A reminder that we didn’t deem this morning’s (roughly in line) CPI data to be a needle mover for the BoE over the medium-term but noted that it did lower the bar to a December cut.
- Short end pricing seems to agree with this idea.
- BoE-dated OIS now pricing ~21bp of easing for December vs. closer to 19bp late yesterday (we will get another round of inflation and labour market data before that decision)
- SONIA futures flat to +1.5, back from early highs.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.760 | -20.9 |
Feb-26 | 3.685 | -28.4 |
Mar-26 | 3.604 | -36.5 |
Apr-26 | 3.502 | -46.7 |
Jun-26 | 3.458 | -51.1 |
Jul-26 | 3.458 | -51.1 |
Sep-26 | 3.444 | -52.5 |
EGBS: German 5s30s Testing Resistance
The German curve has twist steepened, helping 5s30s make another test of resistance around 103.7bps. A push through this level would expose March’s multi-year high of 111bps. German yields are within 1bp of yesterday’s closing levels, with EUR rates potentially requiring catalysts from regional data (e.g. Friday’s flash PMIs) and/or 2026 issuance plans (particularly in Germany) to drive more material repricing.
- Cumulative volumes in Bund futures have only just crossed 200k, below recent averages. Futures are little changed on the session at 128.72, with support at 128.41 untested this week.
- The 10-year BTP/Bund spread is 1bp narrower at 74bps, but remains above Monday’s tightest levels. Italy held a E5bln buyback transaction this morning.
- Eurozone October flash HICP confirmed flash estimates. Core HICP was 2.37% Y/Y (vs 2.35% prior). The Dutch Government has handed back control of Nexperia to its Chinese owner, mitigating a potentially inflationary supply chain risk.
- Focus turns to this evening’s FOMC minutes and the eagerly anticipated Nvidia Q3 earnings after the close.
