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Business energy plans and APF sales weighing on gilts in early trading

GILTS
  • Gilts are under a bit of pressure this morning with a largely parallel shift to the curve with yields around 5bp higher.
  • We think that some of the move can be attributed to an FT report that stated the government would offer a business energy support package until March 2024 along the same lines as that seen for households - i.e. a maximum charge per unit of energy used. This will be a potentially costly programme (so the costs are weighing on the long-end of the gilt curve) but could also support growth and the labour market (and therefore potentially lead to some more inflationary pressures in the near-term which could mean a slightly more active BOE - which is weighing on the short-end of the curve).
  • Furthermore, after the market close on Friday, the BOE confirmed its APF sales plan for Q1-23. The outright amount due to be sold was broadly in line with expectations (GBP9.75bln versus the GBP10-12bln we had looked for). However, it was unclear whether the BOE would sell long-dated gilts while it was still unwinding its Financial Stability Portfolio holdings. The BOE has decided to equally weight the APF buckets between short/medium/long sales, so this will also potentially weigh on gilts on the margin, too.
  • Looking ahead there are no scheduled MPC apperances this week while we will receive public finance data on Wednesday and the final print of Q3 GDP on Thursday.
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