Light Rally Alongside Peers

Gilts follow peers higher after the Spanish CPI data, but bulls don’t force a challenge of initial resistance at Friday’s high (96.33) and the rally stalls at 96.25.

• More meaningful resistance levels are still further out, leaving the bearish technical picture intact for the contract.
• Bulls need to breach the 20-day EMA (97.23) to start turning the backdrop more in their favour.
• Gilt yields are 1-2bp lower across the curve, light bull steepening seen.
• Light dovish moves in GBP STIRs alongside the gilt rally, although the move is only minor, with ~44bp of ’24 cuts now priced into BoE-dated OIS vs. ~43bp pre-gilt open.
• Political headlines continue to dominate in the UK, although related weekend news flow won’t be market moving.
• Late on Friday Goldman Sachs recommended a long 30-Year gilt vs. U.S. Tsy position. They continue to think “that the BoE will cut four times this year, and that U.S./UK rate spreads are too tight. Unlike in Europe, this is also true further out the curve, as 30y Gilts trade flat to USTs - this suggests to us that the long-end may be a better place to express confidence that UK disinflation is on track.”
• GBP750mn of medium-term gilt sales from the BoE’s APF are due this afternoon.