Flatter & Cheaper As BoE Week Gets Underway

Gilts futures see a gap lower at the re-open, following the lead of Tsys & JGBs, leaving the contract -30 or so, a little off opening lows and within the range established on Friday.

• Technically, last week’s move lower signals scope for a deeper pullback, potentially towards 94.58, the Jul 17 low. On the upside, key short-term resistance is unchanged at 97.84, the high on Jul 19. A break is required to resume the uptrend. Initial firm resistance is at 96.81, the Jul 27 high.
• Cash Gilts sit 2-4bp cheaper as the curve bear flattens.
• Local headline flow was somewhat limited over the weekend, leaving focus on cross-market drivers and Thursday’s BoE decision.
• BoE-dated OIS continues to price ~35bp of tightening for this week’s decision after the recent run of domestic data and general market impulses allowed odds of a follow up 50bp step to slip below 50%. Further out, terminal policy rate pricing sits around 5.90%.
• SONIA futures are 0.5-5.0bp cheaper, with the reds leading the move.
• Lower tier credit & money supply local data is due today.