Giving Back a Large Part Of Early Gains & More

Gilts are more willing than their major U.S. & European peers when it comes to giving back their early uptick.

• The locale of the source of at least some of the bid in core global FI markets (the latest ECB consumer inflation expectations) seemingly provides EGBs with more support, while the wider space between prevailing central bank rate levels and current terminal rate pricing in the UK may have further facilitated gilt underperformance.
• We haven’t seen much in the way of meaningful domestic news flow, with the BoE recently confirming prior speculation, flagging that it has concluded all planned sales of its corporate bond holdings (existing stock is now sub-GBP1bn, vs. the ~GBP20bn post-COVID peak). The remaining stock will mature at or before April 5 ’24, and the Bank plans to hold this paper to maturity.
• That leaves the major cash gilt benchmarks running 4bp cheaper to 1bp richer, twist flattening, with a pivot observed around the 10-Year zone.
• Gilt futures are 5 ticks softer on the day, ~65 ticks shy of best levels, after bulls ran out of momentum well before meaningful technical resistance levels were tested.
• SONIA futures are now 3.0bp cheaper to 0.5bp firmer through the reds, twist steepening if we remove the front month from the equation.
• BoE-dated OIS has also pulled back from dovish session extremes to twist steepen on the day.