Cross-Market Impetus & Local Elections Eyed

Nothing to really set Gilts away from the pack today, with the morning drift lower In U.S. Tsys and Bunds helping apply some pressure, allowing the early twist steepening in Gilts to morph into bear steepening. Gilt futures have moved to fresh session lows at typing, last -35 at 101.39, with initial technical support not seen until the 100.37, which represents the May 2 low.

• The latest BoE Decision Maker Panel data saw an incremental moderation in 3-Year inflation expectations, to 3.5% (previously 3.6%), still comfortably above the BoE’s target, while nearer term inflation expectations within the survey still operate on the 5% handle.
• Outside of that, local headline flow remains somewhat limited, leaving spill over from FOMC digestion and ECB setup at the fore today.
• More widely, today’s local elections are likely to highlight the problems facing the ruling Conservative Party and act as a warning shot for PM Sunak, with cost-of-living issues, ongoing strikes and the legacy of the Johnson & Truss governments front and centre (further insight from our political risk team can be found here).
• The SONIA strip is flat to 1.5bp firmer through the reds, then runs little changed to 2.5bp cheaper beyond that point. BoE-dated OIS pricing was incrementally lower this morning, post-FOMC, but has nudged away from session lows, with a 25bp hike still virtually fully priced for this month’s MPC (~24bp of tightening showing) and a terminal rate of ~4.85% in SONIA terms (just over 4.90% in benchmark BoE rate terms) currently priced.