Futures Break Oct High, BoE Pricing Flattens A Touch Pre-Bailey

The REC labour market survey and various consumer/economic headwinds flagged earlier probably feed into the early bid in gilts.

• A technical break of the October high in futures (95.66) will have added further tailwinds for the bid, with the contract trading as high as 95.87, last +40.
• Next technical resistance is seen at 96.05, the Sep 25 high, while the next point of interest on the 10-Year yield front comes in at the September low, 4.212% (which equates to 96.14 in futures today).
• Cash gilt yields are 2-4bp lower, with the belly leading the bid.
• The rally in bonds has also fed into the short end, leaving SONIA futures -0.25 to +6.5 through the blues. The strip twist flattens with the reds outperforming.
• BoE-dated OIS has also flattened, with liquid contracts shedding 0.5-4.5bp on the day.
• The local docket sees the DMO return market with GBP900mn of the 0.125% Mar-51 linker, although it will be BoE governor Bailey’s 09:30 London address that gets more attention.
• A quick reminder that Bailey will give a keynote address at the Central Bank of Ireland’s ‘Financial System Conference. He will speak on the topic of achieving good outcomes in an uncertain world.’
• Current market pricing shows less than 5bp of tightening through the end of the Feb ’24 MPC. Further out ~72bp of cuts are priced through ’24 (vs. current effective SONIA levels). The first cut is more than fully priced through the end of the Bank’s August MPC, while the June MPC sees ~20bp of cuts priced. Yesterday’s dovish extremes are being probed.