GILTS: PMIs & Soft Demand At Supply Weigh, Knee-Jerk Bailey Reaction Unwound

Firmer-than-expected final services PMI data and continued digestion of BoE Governor Bailey’s comments sees gilts away from session highs.

• Initial headlines suggested that BoE Governor Bailey “sees four interest rate cuts in ’25.” That generated a dovish market reaction.
• However, our macro team has noted that he was asked if "gradual" is consistent with 4 cuts over the next year - he largely avoids the question, noting that "we always condition what we publish in terms of the projection on market rates, and so as you rightly say, that [100bp] was effectively the view the market had."
• That isn’t anywhere near as dovish as the headlines, with the knee-jerk move unwinding
• Futures last -24 at 95.76. Lows of 95.67. Next support at the November 28 low (95.17).
• Yields 2-3bp higher across the curve.
• 4.00% Oct-31 gilt supply was on the softer side, also factoring into the recent move back towards session lows.
• Spreads to Bunds 0.5bp wider at ~219bp, clear break of 220bp would expose the ’22 mini-Budget high (227.5bp).
• BoE-dated OIS prices ~83bp of cuts through ’25, little changed vs. early morning levels after briefing moving to ~88bp in initial reaction to Bailey’s comments
• SONIA futures now little changed to -3.0.
• U.S. data to draw much of the focus from here.
• Comments from BoE’s Green & BoE DMP survey data due tomorrow.