Firmer Start, Friday’s High Holds In Futures

Friday’s high (96.44) caps the early rally in gilt futures, as broader core global FI markets regain some poise after Friday’s late pullback.

• A clear break of Friday’s high would turn focus to the May 23 high (97.44). A break there would start to threaten the bearish technical picture.
• Yields are 0.5-2.0bp lower across the curve, with 5s outperforming.
• Headline flow was scarce during Friday's pullback.
• Pre-election political posturing continues to dominate UK news flow, with most BoE appearances cancelled through the July 4 election (policy meetings will take place as scheduled).
• A reminder that late Friday saw the Citi/YouGov year ahead inflation expectations metric moderate to +3.1%, representing the lowest level since July 2021. Longer run inflation expectations also fell, hitting the joint lowest level seen since March ’21.
• That will be providing some background support for GBP FI.
• Friday also saw J.P.Morgan recommend 10-Year gilt longs at 4.38%, noting they “expect yields to be capped around 4.45% and floored around 4.10%.” They also flagged a relative cheapness vs. U.S. Tsys (based on cross-market STIR levels). This is a tactical trade, targeting a move to ~4.20%.
• Final UK manufacturing PMI data is due today.
• Elsewhere, the BoE will sell GBP750mn of medium-term maturity gilts from its APF.