GILTS: Curve Bear Flattens, SONIA Moves Back To Summer Levels

Gilts remain under pressure, with an extension of Friday’s NFP-driven weakness coming alongside worry surrounding higher for longer interest rates/increased gilt issuance and higher crude oil prices.

• Futures trade as low as 96.56 on the move, comfortably through Friday’s low. Last 96.68.
• Yields 2-7bp higher, curve bear flattens.
• 2s10s still below 0bp after Friday’s close below, 5s30s moves towards late August levels, last 61.8bp.
• 10s pierced their July 26 high (4.186%), with the downtrend line drawn off the October ’23 high (4.199%) and round number (4.20%) presenting immediate levels of technical interest.
• 4.20% equates to 96.43 in futures today.
• A clean break above there would expose the early July peak (4.286%).
• STIRs off hawkish session extremes, but most of the early move in SONIA markets sticks.
• BoE-dated OIS shows 22bp of cuts for November ’24, ~37bp of cuts through year-end and ~93bp of cuts through June ’25.
• Contracts are 0.5-11.5bp less dovish vs. Friday’s closing levels.
• SONIA futures flat to -9.0, mostly printing at levels not seen since July/August.
• Little of note on the UK data calendar until Friday’s monthly economic activity readings.
• The BoE will sell GBP600mln of long-dated bonds from its APF this afternoon.

Fig. 1: UK 10-Year Yield (%)