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GILTS: RV May Help Promote Auction Demand, Despite Recent History

GILTS
CEEMEABulletUKGlobalFixed Income BulletsRegionMarkets

We have already flagged some questions surrounding the strength of demand at today’s 5-Year auction, mainly on the back of the deteriorating quality of the bids at recent auctions of the line.

  • As a counterpoint, we note that the RV setup is less worrisome and could help promote demand.
  • The 2-/5-/10-Year fly has recovered from multi-week lows. The move lower was mostly optical, driven by BBG benchmark rolls in mid-August, which means curve RV presents less of a headwind for today’s auction than a first glance would suggest.
  • Meanwhile, the 5-Year swap spread trades just off the recent lows with the pricing of rate cuts, BoE QT process and risk of increased gilt supply driving aggressive spread tightening over the medium-term.
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We have already flagged some questions surrounding the strength of demand at today’s 5-Year auction, mainly on the back of the deteriorating quality of the bids at recent auctions of the line.

  • As a counterpoint, we note that the RV setup is less worrisome and could help promote demand.
  • The 2-/5-/10-Year fly has recovered from multi-week lows. The move lower was mostly optical, driven by BBG benchmark rolls in mid-August, which means curve RV presents less of a headwind for today’s auction than a first glance would suggest.
  • Meanwhile, the 5-Year swap spread trades just off the recent lows with the pricing of rate cuts, BoE QT process and risk of increased gilt supply driving aggressive spread tightening over the medium-term.