GILTS: Light Bull Steepening, Supply & BoE Speakers Eyed Tomorrow

Continued U.S. tariff worry (albeit not generally focused on the UK) and the latest downbeat assessments of the UK labour market (REC-KPMG report on jobs and comments from Bank of America) provide background support for gilts today.

• Futures +18 at 93.38 (93.13-49).
• The short-term bullish cycle in the contract extended last week, initial support and resistance located at 92.50 & 94.35, respectively.
• Yields flat to 1.5bp lower across the curve, front end outperforms.
• 2s10s and 5s30s ~2.5bp and ~4bp below respective ’25 closing highs.
• BoE-dated OIS shows 61.5bp of cuts through-year end, with only modest (6bp) pricing of a follow up rate cut in March and the next 25bp decrease in Bank Rate fully priced through May. We believe a March cut is unlikely at this stage, but it may be a very close vote (potential for a 5-4 vote split is high).
• SONIA futures flat to +3.5, last week’s highs untested.
• Little of note on the UK calendar today, with comments from BoE Governor Bailey & MPC member Mann (after her dovish pivot) eyed on Tuesday.
• This week’s DMO issuance comes via a syndication of the new 4.50% Mar-35 gilt (we expect this to price tomorrow, pencilling in a size of GBP8.5-10.0bln) and GBP1bln of the 0.625% Mar-45 I/L line (Wednesday).