GILTS: Yields Off Recent Lows, bulls Remain In Control
Jan-16 10:39
Gilts are a little softer on the day, operating in narrow ranges after cues from wider core global FI markets provided pressure at the open.
- Futures -9 at 92.39, initial support at the Jan 9 low (91.99).
- Zooming out, bulls remain in technical control despite the pullback, initial resistance at Wednesday’s high (92.95).
- Yields are less than 1bp higher across the curve, 10s briefly traded back above 4.40%.
- 10-Year gilt yields have held above the base of the triangle formation that we have previously identified in closing terms. The support line was breached intraday on Wednesday but held yesterday.
- The support comes in at 4.343% today, with the year-to-date low located just below at 4.336%.
- Early ’26 outperformance vs. swaps maintained despite the pullback from highs in recent sessions. Cash holdings/frontrunning of near-term cash flows touted as explainers by some sell-side deals, while the DMO’s reduction in issuance WAM continues to support long end spreads.
- The release of the text from BoE Governor Bailey’s Tuesday appearance failed to provide any real relevance re: the short-term direction of monetary policy.
- BoE-dated OIS now pricing ~41.5bp of cuts through year-end vs. ~48bp at one point this week. Firmer-than-expected monthly UK GDP data and spillover from U.S. data has promoted the hawkish pullback in the second half of the week, after the market failed to fully discount 2x 25bp of easing through year-end.
- The next cut is still fully priced come the end of the June MPC, with ~80% odds of a move priced through April.
- Ongoing deterioration in the labour market presents the most meaningful dovish risk at this stage.
- Labour market and CPI data is due next week.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Feb-26 | 3.720 | -0.5 |
Mar-26 | 3.653 | -7.2 |
Apr-26 | 3.530 | -19.5 |
Jun-26 | 3.462 | -26.3 |
Jul-26 | 3.383 | -34.2 |
Sep-26 | 3.348 | -37.7 |
Nov-26 | 3.315 | -41.0 |
Dec-26 | 3.312 | -41.3 |
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GILTS: CPI-Driven Outperformance Holds Despite Pullback From Highs
Dec-17 10:34
This morning’s soft UK CPI data drives outperformance for gilts, as wider core global FI markets pull back from session highs alongside a recovery rally in oil.
- Gilt futures last +45 at 91.39 vs. early session highs of 91.78.
- Initial resistance at 91.64 has been pierced, fresh upside would target more meaningful resistance at 91.93. Conversely, initial support is located at yesterday’s low (90.50).
- Yields 3-5bp lower, 5s outperform.
- Initial yield support levels of note went untested across the curve.
- A reminder that 10-to 30-Year yields registered fresh month-to-date highs yesterday.
- The gilt/Bund spread briefly traded below the September ’24 closing low (162.01bp) before moving back above. Attempted breaks lower failed in recent weeks.
- GBP STIRs fade from dovish session extremes, with BoE terminal rate pricing once again failing to hold moves below 3.30%.
- BoE-dated OIS prices 23.5bp of easing for tomorrow and ~66.5bp of cuts through December ’26. Liquid contracts are 1.5-7.5bp more dovish on the day.
- SONIA futures 2.5-7.0 higher. Fresh cycle highs for SFIZ6 and cycle lows for SFIZ5/Z6 seen following the CPI data.
- With a cut BoE at tomorrow’s decision effectively cemented by this morning’s data, one question now is will there be enough in the data to convince any additional "hawkish" MPC member, in addition to Governor Bailey, to support a cut.
- Expect our full preview of that event later today.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.741 | -23.4 |
Feb-26 | 3.676 | -29.8 |
Mar-26 | 3.574 | -40.1 |
Apr-26 | 3.460 | -51.5 |
Jun-26 | 3.414 | -56.1 |
Jul-26 | 3.353 | -62.2 |
Sep-26 | 3.333 | -64.2 |
Nov-26 | 3.312 | -66.2 |
Dec-26 | 3.310 | -66.4 |
EGBS: Retrace In German 5s30s Suggests Underlying Steepening Theme Intact
Dec-17 10:30
The German 5s30s curve has retraced around 60% of the early December flattening, keeping an underlying steepening theme intact. The curve is back above 100bps at 102.4bps, up just over 1bp on the session. Tomorrow’s Eurozone risk events will be key for the direction of the spread into year-end, with the front of the curve eyeing the ECB decision and press conference, and the mid/long-end cognisant of Germany’s 2026 issuance plan.
- Intraday, the curve has twist flattened, with 2-year yields down almost 1bp after spillover from the softer-than-expected UK inflation report this morning.
- An uptick in crude oil futures on reports that the US is preparing fresh sanctions on Russia if Putin rejects the Ukraine peace deal (alongside overnight developments in Venezuela) looks to have helped yields away from session lows.
- Bund futures are + 7 ticks at 127.63, down from earlier highs of 127.79. Initial resistance at 128.08 (Dec 8 high) remains untested.
- 10-year EGB spreads to Bunds are little changed on the session.
- Eurozone final November core HICP inflation confirmed flash estimates at 2.41% Y/Y (vs 2.37% prior). The German December IFO survey was weaker-than-expected, led by the expectations component.
Figure 1: German 5s30s (Source: Bloomberg Finance L.P)
FOREX: UK CPI Pressures GBP Ahead of BOE Decision, DXY Extends Bounce
Dec-17 10:28
- The US dollar trades with a much more constructive tone on Wednesday, prompting a near 0.8% recovery for the DXY from the post-NFP lows. It appears the limited market shift in rates expectations has frustrated the weakening dollar trend into the release, with short-term positions potentially getting squeezed ahead of tomorrow’s US CPI release.
- Lower-than-expected UK CPI has weighed on GBP, pressuring cable down to 1.1312 session lows. It’s not pricing for tomorrow's BoE decision that’s shifting spot markets, but policy differentials further down the curve. With tomorrow’s BOE rate cut well priced, the vote split will be in focus. Today’s inflation print could potentially tilt that to 6-3 – a dovish signal that could usher in easier pricing still for next year as the committee would look more proactive on downside inflation surprises.
- For GBPUSD, support sits at 1.3290, the 50-day EMA. A breach of this EMA would highlight a bearish development and signal a possible reversal. To the upside, attention is on 1.3452 (pierced), a Fibonacci retracement. In EURGBP, 0.8802-10 could provide intraday resistance, but a close above this mark today would open gains toward November’s 0.8865 high.
- USDJPY stands a notable 110 pips above yesterday’s lows at 155.50. Spot traded to within 5 pips of the Dec 05 lows of 154.35 yesterday, bolstering the significance of this area of support ahead of the US data and the BOJ on Friday. Furthermore, the 50-day EMA has also held, intersecting just above the 154.00 handle. A clear breach of this average is required to undermine the bull theme and signal scope for a deeper corrective pullback.
- Weekly MBA mortgage applications and September housing starts highlight the US data calendar before focus turns to tomorrow's central banks, with the Riskbank, Norges Bank, BOE and ECB decisions all due.
