Curve Bear Flattens, Futures Tight

Gilts coil, in a similar manner to Tsys, with the initial catch up to post-Tuesday close weakness in wider core global FI markets tempered by the downtick in crude & equities.

• That leaves futures -8 at 97.83, in a tight 97.69-97.90 range.
• Cash gilt yields are 2.0-3.5bp higher, with a modest bear flattening bias.
• Immediate focus for the long end is on the impending results of the GBP4.0bln short 5-year 4.50% Jun-28 gilt auction.
• This will be the seventh auction of the gilt since its launch in June. The quantity of bids has stayed fairly stable through that period (with bid-to-covers ranging from 2.19-2.86x). However, the quality of the bids has been more variable with tails ranging from 0.6-2.1bp through the period (1.2bp in January, 0.9bp in December).
• We don’t hold any real conviction re: potential strength of the auction.
• SONIA futures show flat to 2.5bp lower through the blues.
• BoE-dated OIS shows ~73.5bp of cuts for ’24, with little willingness to push meaningfully beyond pricing 75bp of cuts at present.