GILTS: Swap Spreads Hold Lower, 80bp Limits 2s10s Steepening

Gilts hold off early session lows, with global benchmark equities edging away from highs that followed Nvidia earnings.

• No lasting spill over from the hawkish Fed meeting minutes and weakness in JGBs.
• Futures last little changed at 91.71 (91.51-85 range)
• Initial support and resistance of note located at 91.12 & 91.94.
• The recent bear cycle deepened yesterday, overriding the bullish technical conditions that were in place.
• Yields -/+0.5bp across the curve, light twist flattening.
• 10- & 30-Year swap spreads trade within 1bp of yesterday’s lows. Questions surrounding the future of PM Starmer’s position as Labour leader have increased political/fiscal risk premium in gilts ahead of next week’s Budget.
• The recent steepening on the 2s10s curve has stalled at 80bp, with the round number protecting the year-to-date closing high (81.63bp).
• Gilt/Bund spread 188bp (-1bp) after a failed break above 190bp yesterday.
• This morning’s I/L gilt supply passed smoothly.
• BoE-dated OIS pricing ~21bp of easing for December after yesterday’s CPI data lowered the bar for a cut at that event.
• SONIA-implied terminal rate pricing Implied ~3.40%, holding comfortably within the multi week ~3.30-3.45% range.
• Lower tier CBI data and comments from BoE’s Dhingra (dove) & Mann (hawk) are due today.
• A reminder that we do not expect much market vol. to stem from any non-Bailey BoE comments in the lead up to the December decision, given the entrenched views of the other MPC members (Bailey is deemed the key swing voter).