Light Steepening Now Seen As Short End Recovers From Cheaps

Dips below 95.50 in gilt futures have been relatively limited, with bears unable to force a meaningful challenge of yesterday’s low (95.37) thus far. Contract last -70, ~20 off lows.

• Domestic headline flow remains light, leaving the focus on cross-market flows i.e. a hawkish ECB source report from the FT, a bid in European equities (aided by Chinese economic data) and fresh ’23 highs for crude oil futures (which have since moved off best levels), while there are some suggestions that long/recieved positioning may have factored into the early weakness in the UK short end.
• Cash benchmarks last sit 4-6bp cheaper, with a light steepening impulse in play after the early flattening move on the wider curve was more than reversed.
• The reversal in curve direction has been aided by SONIA futures moving away from lows, to last trade 0.25-6.0bp cheaper, with the reds still the weakest pack on the strip.
• ~21bp of tightening is priced into the BoE-dated OIS strip for next week, while terminal policy rate levels hover a little below 5.65%.