Curve Bear Flattens, Bouncing Off Cheaps In Recent Trade

Weakness in Gilts remains evident mid-way through the morning, although the space is off cheaps, with benchmark futures running ~70 ticks softer on the session.

• Initial support comes in at 95.37, yesterday’s low and just below today’s base. Below there, bears would eye 94.63, the 20-day EMA.
• Cash benchmarks are 5-7bp cheaper, bear flattening.
• The BoE/Ipsos inflation attitudes survey saw a 0.1ppt uptick in inflation expectations covering the next 12 months (to 3.6%), while the medium-term measure moderated to 2.9% (see more on that here). The latter point may have helped Gilts to stabilise.
• There hasn’t been much in the way of other domestic triggers to note, with the early Friday hawkish ECB sources piece from the FT the likely driver for Bund weakness.
• Still, the moves in the UK short end have outpaced benchmark European counterparts, with some flagging a potential unwind of what they deem relatively long positioning in the SONIA reds as a potential background catalyst.
• SONIA futures last run 0.25-7.0bp cheaper, off session lows as gilts bounce, with the reds leading the move (adding further credence to above positioning comments).
• BoE-dated OIS show ~22bp of tightening for next week’s meeting, while terminal policy rate pricing sits in the 5.60-5.65% band.