A Little Lower, Solid Demand At Auction Sees Some Cross-Market Demand

Gilts are marginally softer on the day. Early widening vs. global peers has reversed, with gilts now tighter vs. EGBs.

• Firmer-than-expected Australian CPI data provided the initial pressure.
• The presence of today’s GBP3bn 3.75% Jan-38 gilt supply applied further weight into the bidding deadline.
• Solid demand and pricing metrics at the auction then facilitated a rally away from lows and the cross-market bid.
• Futures -25 at 98.39. Support at 98.21 remains untested, leaving the bullish technical backdrop intact.
• Cash gilt yields are ~1bp higher across the curve.
• BoE-dated OIS is little changed on the day, showing ~14bp of cuts for August, ~20bp of cuts through the September MPC and ~44bp of cuts come year end.
• SONIA futures are flat to -4.0, sticking to narrow ranges thus far.
• We covered some potential short-term limitations to further dovish repricing earlier in the week.
• Lower tier UK CBI sales is due later this morning but won’t be a market mover.