Lower Still, Initial Support Breached In Futures, 10s Above 4.00%

The combination of firmer-than-expected domestic PMI data and softer-than-recent trend demand at the latest gilt auction (GBP4.0bn of the 4.50% Jun-28 gilt) applies pressure to the space.

• Futures closed the opening gap higher as a result, with the move extending further.
• The PBoC’s RRR cut & a Tsy bid were seen as supportive factors into the open, while spill over from European PMIs provided further support in initial Wednesday dealing. That was before the domestic data countered.
• The contract last shows -50 at 97.89, 8 ticks off the low of the early 95-tick range.
• Support at the Jan 17 low (98.00) is breached. Bears now look to the Dec 11 low/key support (97.39).
• Cash gilt yields sit 4.5-6.5bp higher on the day, with a bear flattening bias.
• 10-Year yields have moved beyond 4.00% for the first time this year, which would have added selling pressure. The Dec 11 high (4.085%) presents the next target for gilt bears on that front.
• SONIA futures sit flat to 7.0bp lower through the blues, at/just off worst levels of the day, with the early uptick more than reversed.
• BoE-dated OIS is little changed to ~5.5bp firmer on the day through ’24 contracts, with early receiver-side moves more than countered. ~21.5bp of cuts are now seen through the June-24 MPC, meaning a 25bp cut is now less than 90% priced.
• ~93bp of cuts are priced through ’24 on the whole, with yesterday’s extreme breached as the foray below 100bp of cuts extends a little further.