Firmer & Steeper As Short End Rethinks BoE Outlook Post-CPI

Gilt futures open above 96.00, but don’t manage to meet the early indicative calls, with a 96.00-29 range seen early on.

• Technically, futures have recovered from yesterday’s low but for now remain below resistance at 96.49, the Sep 14 high. A break of this resistance is required to confirm a resumption of the bull cycle that started Aug 17 and this would open the 97.00 handle. Key short-term support has been defined at Monday’s 94.64 low. A reversal lower and a break of this support would threaten the bullish condition and expose 94.05, the Sep 11 low.
• Cash gilts run 5-19bp richer, bull steepening, with markets reconsidering the outlook for BoE tightening post-CPI.
• 2s10s moves to the least inverted levels seen in a few weeks, while 5s30s move to the steepest level seen since June.
• SONIA futures run 8.5-18.0bp richer through the blues, with the reds leading and the space back from post-data bests as gilts open.
• BoE-dated OIS shows around 15bp of tightening for tomorrow’s MPC, while terminal policy rate pricing is steady around 5.50% i.e. markets only look for 25bp of further tightening from the BoE in the current cycle.
• Elsewhere on the UK news front, XpertHR Increases in basic pay deals slowed to a median 5% in the three months to the end of August compared with the same period in 2022, which is still elevated but comfortably shy of the highs seen in post-COVID times.
• Finally, the Times shadow MPC ‘voted’ 7-2 in favour of another 25bp hike at tomorrow’s MPC.