Most Of Early Rally Holds, Pullback From Recent Yield Highs Extends

Gilts are firmer, alongside core global peers.

• Gilt futures traded as high as 99.61 before pulling back to 99.50.
• Friday’s late downtick in gilts has been reversed, with little meaningful news flow seen at the time of the pre-weekend pullback.
• Friday’s high in the contract has been breached, with any fresh upside momentum set to expose the May 23 high (97.44). A break there would pose a deeper threat to the bearish technical backdrop.
• Cash gilt yields are flat to 3bp lower as the curve bull flattens.
• The pullback from last week’s multi-month/early ’24 highs in benchmark yields extends.
• 2s10s have pulled back from last week’s test of multi-month steeps.
• Slightly softer than flash UK PMIs, a move away from best levels for European & U.S. benchmark equity futures and little sign of movement from Israel when it comes to a peace accord with Hamas have all been touted as supportive factors.
• Building EUR & GBP IG issuance slates have done little to derail the rally.
• Political headlines continue to dominate domestically, with polling headwinds for PM Sunak once again evident.
• SONIA futures are -0.5 to +2.0, sticking to tight ranges.
• This afternoon will see the BoE sell GBP750mn of medium-term maturity gilts from its APF.
• Expect broader headline flow, cross-market spill over and U.S. data to dictate price action from here.