Back To Little Changed As Shallow Pill-Induced Rally Unwinds

Gilt futures have traded away from session lows after bears failed to breach last week’s base, last unchanged at 97.63 (97.51-89 range).

• Initial support is at 97.48, with initial resistance at 98.29.
• Yields 0.5-1.5bp lower across the curve, light bull steepening.
• 2s10s and 5s30s stick within recent ranges.
• Gilts firmed away from lows as BoE chief economist Pill flagged likely considerations for rate cuts in the summer, although his warning words surrounding the risks of too swift a move away from restrictive policy settings helped limit the rally. Pill also reiterated that the policy rate would still be restrictive after a cut.
• His comments had a marginally dovish feel but weren’t a meaningful gamechanger when compared to market pricing and recent BoE rhetoric, allowing the knee jerk and relatively shallow dovish move to mostly unwind.
• That leaves 13bp of cuts priced into BoE-dated OIS for the June MPC and ~56.5bp of easing showing through year end.
• SONIA futures are within 1bp of yesterday’s settlement levels.
• Labour market data provided the widely expected 0.1ppt uptick in the unemployment rate. Elsewhere, the headline wage figures topped expectations, although the closely watched 3-month Y/Y private sector wage data undershot the BoE’s expectations, removing one hurdle for a June rate cut.
• Mar-73 I/L supply passed smoothly.