GILTS: Off Lows, Fiscal Speculation Dominates

Gilts have moved away from lows after a bid in equities, downtick in wider core global FI markets and the latest round of UK fiscal speculation weighed at the open.

• While press reports have suggested more limited moves in CGT than many envisaged, Labour seems to be focusing on maximising the overall tax take from any fiscal measures, striking the balance between taxation rates and not dissuading taxable activity.
• The net take is ultimately what matters for public finances, and this focus will have likely factored into the stabilisation in gilts after the initial downtick.
• Futures last -27 at 97.72 vs. lows of 97.55.
• Key near-term resistance at the September 2 low (98.11) was not breached during Wednesday’s rally, bulls still need to break that level to threaten the current bearish cycle.
• Yields 1.5-3.0bp higher across the curve, bear flattening after yesterday’s bull steepening.
• 10s 1bp tighter vs. Bunds, ~187bp.
• SONIA futures 0.5-3.5 lower, off lows alongside gilts.
• Little movement in BoE-dated OIS, 24bp of cuts priced for November.
• Spill over from macro events is eyed today, with the latest ECB decision (focus on the rhetoric with a 25bp cut widely expected and almost fully priced) and U.S. weekly jobless claims data headlining.
• Further out, UK retail sales data is due Friday.