Back From Best Levels, Curve Flatter, BoE Pricing Off Dovish Extremes

Gilt futures operate 15-20 ticks shy of best levels after topping out just ahead of 96.00.

• A quick reminder that local labour market matters and continued worry re: the health of the consumer probably factored into the early bid, which garnered further momentum as gilt futures broke through their October high.
• Next technical resistance is seen at 96.05, the Sep 25 high, while the next point of interest on the 10-Year yield front comes in at the September low, 4.212% (which equates to 96.14 in futures today).
• Cash gilt yields are 1-4bp lower, with the curve flattening a touch on the day.
• The rally in bonds also fed into the short end before the pull back from best levels. That leaves SONIA futures -0.5 to +2.0 through the blues, with the reds outperforming.
• BoE-dated OIS also flattened, before moving off dovish extremes alongside the move away from best levels in gilts. Liquid contracts on that strip are flat to ~1bp softer on the day as a result. The early dovish move saw yesterday’s extremes tested, although there were no substantial breaks.
• Comments from BoE Governor Bailey were relatively inconsequential for markets, although may have helped limit/counter the dovish move in OIS, He underscored the need to maintain the BoE’s interest rate policy in the fight against inflation, while stressing that it is too early to start discussing the idea of rate cuts.