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GILTS: Auction-Related Weakness Fades, Futures To Fresh Session Highs

GILTS
CEEMEABulletUKGlobalFixed Income BulletsRegionMarkets

The width of the tail at the latest round of July-34 gilt supply pushed gilts away from session highs, although the cover ratio (which comfortably topped 3.00x) limited the pullback, before gilts recovered.

  • Futures initially softened to 96.65 post-auction, before moving to fresh session highs of 96.89.
  • Bulls need to breach the Oct 7 high & Sep 2 low (96.93/98.11) to start turning the tide in their favour, with the bearish technical picture remaining intact.
  • Yields 1.5-3.5bp lower on the day, curve steepens.
  • Initial worry surrounding the potential for increased investment spending (facilitated by a widely expected tweak to the fiscal rules) has been overcome.
  • We have noted that the probability of more controversial Budget measures is receding (based on media reports). This likely factored into the early rally, after the OBR judged that the proposals in their initial form would not raise money/provide a lower tax take.
  • GBP STIRs a little more dovish as gilts rally.
  • BoE-dated OIS price 22bp of cuts for November, 37bp of cuts through year-end and 99bp of cuts through June.
  • SONIA futures flat to +5.5.
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The width of the tail at the latest round of July-34 gilt supply pushed gilts away from session highs, although the cover ratio (which comfortably topped 3.00x) limited the pullback, before gilts recovered.

  • Futures initially softened to 96.65 post-auction, before moving to fresh session highs of 96.89.
  • Bulls need to breach the Oct 7 high & Sep 2 low (96.93/98.11) to start turning the tide in their favour, with the bearish technical picture remaining intact.
  • Yields 1.5-3.5bp lower on the day, curve steepens.
  • Initial worry surrounding the potential for increased investment spending (facilitated by a widely expected tweak to the fiscal rules) has been overcome.
  • We have noted that the probability of more controversial Budget measures is receding (based on media reports). This likely factored into the early rally, after the OBR judged that the proposals in their initial form would not raise money/provide a lower tax take.
  • GBP STIRs a little more dovish as gilts rally.
  • BoE-dated OIS price 22bp of cuts for November, 37bp of cuts through year-end and 99bp of cuts through June.
  • SONIA futures flat to +5.5.