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Gilts Outperform Core EGBs Following Soft UK CPI

BONDS

Gilts continue to outperform core EGBs following the lower than expected UK CPI print for November.

  • Gilt futures are off intraday highs, but remain 71 ticks higher at 102.66 (from a high of 103.08), with 103.12 (2.618 proj of the Nov 24 - 29 - 30 price swing) the first resistance.
  • Bunds and OATs lag, each around 35 ticks higher on the day.
  • Cash curves bull steepen, with the 10Y Gilt yield trading at the lowest level since April and the 2Y yield the lowest since May.
  • UK services inflation, watched closely by the BoE, disinflated to 6.3% Y/Y (vs a split consensus of between 6.5/6.6% in our preview, 6.6% prior and 6.9% in the BoE Nov projections), prompting a dovish reaction in STIR and core FI markets. BoE-dated OIS contracts price over 140bps of cuts through 2024 (vs less than 125bps yesterday).
  • Peripheries are mixed, with the BTP/Bund spread 1.3bps wider at 162.8bps (though still around tightest levels since August) and the GGB/Bund spread a touch narrower.
  • The remainder of today's UK/EZ data docket is light, with most interest in ECB's Lane at 14:00GMT, speaking on "The Euro Area Outlook".
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