Holding Lower, Wider Matters Eyed

Most of the early weakness in gilts holds. Futures -20 at 97.77 vs. early lows of 97.67.

• Next support is seen at the trendline drawn off the May 29 low (97.40).
• The break of the 20-day EMA provides greater risk to the bullish technical backdrop, although the pullback is deemed corrective at this stage.
• Cash yields are 1.5-2.5bp higher, with the 5- to 10-Year zone leading the move.
• The move away from June yield lows extends, leaving multi-month ranges intact.
• SONIA futures are flat to 2.5bp lower. BoE-dated OIS shows 13.5bp of cuts for August, ~42bp of cuts through year end.
• While there hasn’t been a clear driver for today’s move, we note that the firmer-than-expected rounds of Canadian & Australian CPI data has generated plenty of discussion when it comes to the “bumpy” path for the moderation in inflation, with broader focus on tomorrow U.S. PCE reading.
• The BoE FSR is due today, but that shouldn’t be a market mover.