BoE Pricing Allows Front End To Lead Way Lower

Gilts cheapen at the re-open as participants look to the pullback from Thursday’s best levels in wider core global FI markets, leaving the major cash benchmarks running 3.5-6.5bp cheaper as the curve bear flattens. Gilt futures move back below 95.00, gapping lower at the re-open, to last print a handful of ticks below settlement as Thursday’s late bid is erased.

• The move in core fixed income allows for some hawkish re-adjustment in UK STIRs after the recent pullback from hawkish cycle extremes, leaving SONIA futures flat to -4.5 through the reds, while the BoE-dated OIS strip steepens as terminal policy rate pricing moves back above 6.25%, firming by 8bp this morning. That hawkish repricing is promoting the aforementioned bear flattening of the gilt curve.
• Local headline flow has been fairly limited since traders went home on Thursday, with the highlight coming in the form of the OBR providing its opinions on tabled public sector pay increases, alongside warnings re: inflation becoming more embedded in the UK economy.
• The domestic calendar is effectively non-existent ahead of the weekend, which will leave participants on headline & cross-market watch.