Futures Reverse Early Gains, Curve Twist Steepens

Gilt futures continue to fade from best levels of the day to last trade -10.

• Bears remain focused on yesterday’s low, which protects the ‘22/LDI meltdown low from a technical standpoint.
• The early bid stemming from the latest domestic public finance data and softer than expected retail sales prints has faded, leaving cash yields 3bp lower to 4bp higher as the curve twist steepens.
• 2s10s have printed at the least inverted level seen since June.
• There was also a global feel to the early bid in futures, given the rally elsewhere (pre-weekend Israel-Hamas hedging, a weaker start for equities and Asia-Pac liquidity provisions highlighted), while participants have also had to assess the degree of justified spill over from Fed Chair Powell’s Thursday comments.
• Also note that BoE Governor Bailey’s early morning comments failed to meaningfully move the needle, although the fact that he noted that September’s CPI data failed to provide any meaningful surprises may have facilitated some modest dovish repricing in the front end.
• SONIA futures last show flat to +6.0 through the blues, with the reds outperforming.
• BoE-dated OIS contracts are 1.5-4.5bp softer on the day as that strip flattens.