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GILTS: Early Sell Off Extends Alongside Reduction In Pricing Of BoE Cuts

GILTS
CEEMEABulletUKGlobalFixed Income BulletsRegionMarkets

The early sell off in gilts has extended a little further.

  • UK CPI data was in line with expectations, with the subsequent sell off a product of the recent build-up of long positioning.
  • Although the technical set up remains bullish, bears have broken initial support in futures (100.64), last trading 100.58.
  • An extension lower would target the Sep 10 low (99.83).
  • Yields are 3-6bp higher across the curve, bear flattening as GBP STIRs see a hawkish adjustment.
  • BoE-dated OIS now price ~2bp of cuts for this week and ~47bp of cuts through year end vs. ~4.5bp and ~50.5bp late yesterday.
  • SONIA futures 2.0-6.5 lower.
  • The latest Fed decision provides the next meaningful input ahead of tomorrow’s BoE decision. An unusually high degree of uncertainty is priced into U.S. STIRs, as the market balances the likelihood of a 25bp of 50bp cut.
  • Further out, the BoE is expected to leave bank rate unchanged tomorrow. In that case, GBP STIRs are set to look to the vote split and any accompanying guidance. Our macro team has identified a baseline of 2 MPC members voting for a cut.
  • Gilts will also have to react to any alterations to the BoE’s QT scheme. Consensus looks for a GBP100bln stock reduction, while we look for a slightly more aggressive GBP110bln.
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The early sell off in gilts has extended a little further.

  • UK CPI data was in line with expectations, with the subsequent sell off a product of the recent build-up of long positioning.
  • Although the technical set up remains bullish, bears have broken initial support in futures (100.64), last trading 100.58.
  • An extension lower would target the Sep 10 low (99.83).
  • Yields are 3-6bp higher across the curve, bear flattening as GBP STIRs see a hawkish adjustment.
  • BoE-dated OIS now price ~2bp of cuts for this week and ~47bp of cuts through year end vs. ~4.5bp and ~50.5bp late yesterday.
  • SONIA futures 2.0-6.5 lower.
  • The latest Fed decision provides the next meaningful input ahead of tomorrow’s BoE decision. An unusually high degree of uncertainty is priced into U.S. STIRs, as the market balances the likelihood of a 25bp of 50bp cut.
  • Further out, the BoE is expected to leave bank rate unchanged tomorrow. In that case, GBP STIRs are set to look to the vote split and any accompanying guidance. Our macro team has identified a baseline of 2 MPC members voting for a cut.
  • Gilts will also have to react to any alterations to the BoE’s QT scheme. Consensus looks for a GBP100bln stock reduction, while we look for a slightly more aggressive GBP110bln.