GILTS: Early Rally Fades, Long End Swap Spreads Tighten

Early gains more than reversed, with spill over from weakness in Bunds applying pressure.

• A U.S. Tsy rally following the narrowing of U.S. election odds provided support at the open.
• That was before signs of German political/fiscal uncertainty weighed on Bunds.
• Uptick in crude oil futures provides another headwind.
• Futures last -19 at 93.75, just above session lows of 93.70.
• Contract sticks comfortably within Friday’s range.
• Bearish technicals remain intact. First support at Thursday’s low (93.18).
• Yields now 1.5-3.5bp higher on the day, curve steeper.
• Swap spreads flat to ~1bp tighter to start the week, with the supply outlook limiting any rallies.
• 5-, 10- & 30-Year swap spreads on track to set fresh closing cycle lows at current levels.
• The DMO will outline its agenda for the FQ4 (Jan-Mar) investor/GEMM consultation at 15:30. We set out our expectations for the gilts on offer on pages 5-7 of our Budget Review.
• Focus also on cross-market flows into the U.S. election and any further fiscal-related headlines.
• BoE-dated OIS flat to 4bp more hawkish on the day.
• 22bp of cuts priced for next week, 29.5bp showing through year-end, 57bp through March and 76bp through June.
• SONIA futures flat to -2.0.
• BoE decision due Thursday, all 54 surveyed by BBG look for a 25bp cut. BMO the only name looking for no change (that we have seen).