Curve Twist Steepens

The firmer than expected UK retail sales data has kept any bids in Gilts capped, with little in the way of lasting respite from dovish BoJ source reports. Futures operate a little above session lows at this stage, last running ~25 ticks softer on the day, as bears look to close Wednesday’s CPI-inspired opening gap higher (Tuesday’s close is ~50 ticks off prevailing levels) to start turning the technical tide more in their favour.

• Gilts are 1bp richer to 2bp cheaper across the curve, Twist steepening, with swap spreads generally little changed, dealing either side of flat on the day.
• The SONIA strip now twist steepens on the day.
• BoE-dated OIS runs little changed to a touch softer, with near 50/50 odds of a 50bp hike at next month’s MPC meeting showing, alongside a terminal policy rate of just under 5.95%
• As noted earlier, domestic politics haven’t factored into price action in a meaningful manner after the by-election results saw the ruling Conservative Party avoid the worst-case scenario, although the locations of the 2 seats that it lost reaffirm the headwinds that PM Sunak faces ahead of the next general election.