Gilts Outperform As BoE's Pill Fails To Push Back On Idea Of Summer '24 Rate Cut

Gilt futures have shown above Monday’s high on a few occasions, although bulls haven’t managed to get near closing Monday’s opening gap lower.

• Futures last +60, just shy of best levels, with bulls eying the October high (95.66) as the next level of meaningful resistance.
• Cash gilt yields are 6.5-9.5bp lower, bull steepening.
• Gilts have outperformed core global FI peers across most of the curve.
• The main factor driving the outperformance has been the delayed digestion of late Monday comments from BoE chief economist Pill.
• A quick reminder that Pill gave a bit of a green light to market pricing of 25bp rate cut come the end of August ’24.
• Elsewhere, his words on inflation and the latest slowing in the domestic Kantar food price inflation metric (which fell into single digits in Y/Y terms) also provided support.
• More widely, weaker oil prices will have also helped the bid.
• The presence of the bidding deadline for the latest round of 10-Year supply helped futures away from best levels, before the clearance of the auction above prevailing mid prices, with a reasonably strong cover ratio, provided fresh support.
• SONIA futures are flat to +11.5 through the blues, with the front of the reds outperforming on the strip.
• BoE-dated OIS is 0.5-12bp softer through the liquid contracts, with terminal policy rate pricing ~6bp above current effective SONIA levels. Pill’s comments have allowed markets to fully discount a 25bp cut come the end of the Aug ’24 MPC.