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10s30s bear steepen as prospect of end of APF reinvestments before March

GILTS
  • Gilt futures have settled into a 126.34-126.63 range over the past hour (after the BOE and ECB policy announcements). For reference, yesterday's close was 127.30 and the bottom of the range is holding at the 126.32 support represents the low of 2 December.
  • Interestingly, its been a fairly parallel shift in the curve out to around 10-years, with the 10s30s curve bear steepening.
  • As we noted earlier, recall that the BOE holds a gilt maturing in March (of which it holds GBP25.1bln nominal, GBP27.9bln at the price the BOE paid). If Bank Rate is 0.50% in February (i.e. if there is another 25bp hike in February) those proceeds will not be reinvested. This prospect is disproportionately hitting longer-dated gilts (as normally a third of the reinvestment proceeds would go towards purchasing 20+ year maturity gilts), hence the steepening of the 10s30s curve.
  • 2y yields up 7.1bp today at 0.547%
  • 5y yields up 7.2bp today at 0.655%
  • 10y yields up 7.5bp today at 0.808%
  • 30y yields up 9.3bp today at 0.993%
  • 2s10s up 0.4bp today at 26.1bp
  • 10s30s up 1.9bp today at 18.6bp
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