Gilts aggressively sell-off (5's +9bps), £IG spreads still wider YTD

Our rates analyst flagging the 4.50% Jun-28's were the weakest gilt auction of 2024 - tailed 1.2bp, covered 2.86x (vs. 3*> in YTD auctions- yesterday's £6b long-end 30.5y were covered 12.8*, 5s30s has flattened -14bps since UK CPI). PMI's earlier this morning came in above expectations across both manufacturing & services (bucking other euro area services weakness). Analyst have speculated that the red-sea impact would drive more pressure for local inflation - signs of that in the report; "Private sector firms meanwhile recorded the steepest rise in input costs since August 2023, driven by renewed cost pressures in the manufacturing sector. There were widespread reports of higher freight costs in the wake of the Red Sea crisis. Moreover, global shipping delays meant that suppliers’ delivery times lengthened for the first time in 12 months and to the greatest extent since September 2022".

Signs of £IG spread underperformance YTD (seems to be echoed in FTSE underperformance) aren't echoed in the £HY index - smaller index though exposes it to single curve moves - still impressive spread moves given rates repricing higher/impact on ICR's/refi's etc. Backing that sentiment, business confidence was strong in today's report "more optimistic about the year ahead, with confidence rebounding to its highest since last May. Business activity and confidence are being in part driven by hopes of faster economic growth in 2024, in turn linked to the prospect of falling inflation and commensurately lower interest rates"...the latter will be tested now with BOE pricing the first of the major 3 to cross below 100bps of easing for this year - its moved index yields up, now offering a+175bp pick up vs. €IG (£ is longer duration/9yr) & 27bps above $IG. No signs of support for spreads still.