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Gilt Week Ahead

After last week's slew of MPC speakers the focus this week will be on activity data for July, Brexit negotiations and the syndicated launch of the new 15-year gilt.

  • Monthly GDP and its components (IP, services, trade, construction) are all due for release on Friday. 25/28 economists in the early Bloomberg poll expect a smaller increase in growth than in June despite the "Super Saturday" re-opening of pubs and restaurants (and a number of other businesses) on 4 July. However there is a wide confidence band around the data. The median estimate is for 6.7% growth but the majority of expectations in the survey look for growth in the 5-8% range M/M (which corresponds to a drop of 6.5-8.0% on the 3M/3M measure). These estimates all see the size of the UK economy more than 10% below its February peak.
  • Brexit negotiations continue to be far from optimistic with talks ongoing this week and culminating in a meeting of the chief negotiators on Thursday. We don't think that "no deal" is fully priced into markets at this point and headlines are likely to remain pessimistic about the prospects for a deal.
  • The DMO will launch its seventh new gilt issue of the fiscal year this week with the 15-year 0.625% Jul-35 gilt to be sold via syndication. This will be the fourth syndication of the fiscal year following the GBP12bln 0.375% Oct-30 gilt and GBP7bln 0.50% Oct-61 syndications in May and the GBP9bln 0.625% Oct-50 syndication in June. The 15-year segment of the curve sees perhaps less natural demand than the other maturities and the DMO has generally reduced auction sizes since their peak. For these reasons we suspect that the size of the syndication will be the smallest so far this fiscal year, but we still expect decent demand with a deal size of GBP5-8bln. Joint bookrunners for the deal are BofA Merrill Lynch, Citi, JP Morgan, Lloyds and RBC.

See the full document for auction previews, QE tracker and BOE purchase analysis, cash flow matrix and issuance calendars.

https://emedia.marketnews.com/GiltWeekAhead07092020.pdf

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