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GILTS: Citi's Fiscal Warning Weighs

GILTS
CEEMEABulletUKGlobalFixed Income BulletsRegionMarkets

Gilts under some light pressure early today.

  • This follows a pre-Budget warning from Citi noting that “creative solutions are needed to address investment demands, without accruing even more conventional debt. Here, the underlying risk emanates from the buying power of bondholders and their ability to go ‘on strike’.”
  • Citi went on to note that such a risk is ”a material concern, but not now… If the rules are changed and the possibility is entertained that Rachel Reeves could invest something like £50 billion next year, then it’s a conceivable risk.”
  • Markets aren’t really looking at that caveat and are trading off the headlines surrounding the risk itself.
  • Futures trade as low as 96.37 before recovering to 96.47. The bearish technical backdrop remains intact with initial support at the Oct 8 low (98.20).
  • Yields ~2bp higher across the curve. Monday’s cycle high in 10s (4.221%) remains intact but is only 2bp away from prevailing levels.
  • 10s widen ~1bp vs. Bunds.
  • SONIA futures flat to -2.5, little changed vs. pre-gilt open levels.
  • Fiscal speculation will continue to dominate today, with no tier 1 UK releases scheduled.
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Gilts under some light pressure early today.

  • This follows a pre-Budget warning from Citi noting that “creative solutions are needed to address investment demands, without accruing even more conventional debt. Here, the underlying risk emanates from the buying power of bondholders and their ability to go ‘on strike’.”
  • Citi went on to note that such a risk is ”a material concern, but not now… If the rules are changed and the possibility is entertained that Rachel Reeves could invest something like £50 billion next year, then it’s a conceivable risk.”
  • Markets aren’t really looking at that caveat and are trading off the headlines surrounding the risk itself.
  • Futures trade as low as 96.37 before recovering to 96.47. The bearish technical backdrop remains intact with initial support at the Oct 8 low (98.20).
  • Yields ~2bp higher across the curve. Monday’s cycle high in 10s (4.221%) remains intact but is only 2bp away from prevailing levels.
  • 10s widen ~1bp vs. Bunds.
  • SONIA futures flat to -2.5, little changed vs. pre-gilt open levels.
  • Fiscal speculation will continue to dominate today, with no tier 1 UK releases scheduled.