MNI Gilt Week Ahead: External events take centre stage

• We noted in our BOE review that we thought there was less data-dependency in the MPC’s decision making following the June MPC meeting, and we think that with only tier two (or second reading) data this week, and the continuing communications blackout from the BOE during the election campaign, that UK markets will be more driven by external events this week. After the election we will be closely watching any MPC speeches.
• The week ahead does see the BBC head-to-head debate between Starmer and Sunak – but the polls are still showing no real sign of moving away from a sizeable Labour majority, and Starmer has continued to steer away from making any commitments to potentially controversial policies, a tactic that we expect to continue this week. Arguably more important for markets will be the Trump vs Biden US presidential election debate which will happen in the early hours of Friday morning London time. And also important for UK markets will be the first flash HICP prints from France, Spain and Italy on Friday.
• Looking at UK specific events, this week the final Q1 GDP print will be the key release which includes the current account. CBI industrial trends data today and distributive trend data on Wednesday are also due.
• Note that this afternoon's medium-dated APF sales operation will be the last at GBP750mln - for more on the future of QT see page 3 of our BOE review. Today’s operation will likely be watched closely given last week’s very poorly covered long-dated APF sales op. Indeed, last week's long-dated operation was the second-weakest since APF sales began (acheiving a bid-to-cover of 1.18x). Prior to that operation, long-dated ops in 2024 has seen bid-to-covers of 1.72x on average and ranging from 1.52-1.87x. Medium-dated operations have been much more in demand recently, with bid-to-covers year-to-date averaging 2.48x, and the last two operations having seen bid-to-covers in excess of 3x. Will today's APF operation be market moving? If all goes as expected and we see another medium-dated operation with a good bid-to-cover, we don't think so. However, if we see a similar deterioration in the bid-to-cover, potentially below 1.5x (note the second worst ever medium-dated APF had a bid-to-cover of 1.87x), we think that there could be more widespread concern surrounding demand for gilts, with potential for knock-on impacts to gilt futures.

GiltWeekAhead20240624.pdf