Off Best Levels

Gilts consolidate shy of early highs, with offshore matters generally dominating thus far. The move away from yesterday’s lows extends after key mid-December levels in futures & 10-Year yields were not tested by bears.

• A late Thursday source report from BBG hasn’t go much airtime but noted that “the Treasury is telling ministers that Chancellor Hunt is expected to have limited money for giveaways in his upcoming budget, signalling caution as members of the ruling Conservative Party push for tax cuts ahead of a general election.”
• The piece went on to suggest that “internal Treasury analysis shared with officials in recent days estimates that Hunt will have just £14bn of headroom when making his tax and spending decisions. That figure remains near historic lows, and is far less than some economists had projected.”
• This will likely be filtering into the gilt rally today.
• Futures last show +15 at 98.53, 25 ticks off the peak of the session’s 37-tick range.
• Gilt yields are 0.5-2.0bp lower on the day, with the 5- to 10-Year zone leading.
• SONIA futures sit -0.5 to +4.0 through the blues, operating off best levels.
• BoE-dated OIS is little changed to ~4bp softer across ’24 contracts. The first 25bp cut is fully discounted come the end of the June ’24 MPC, with ~103.5bp of cuts priced for ’24 on the whole (vs. ~90bp at one point yesterday).
• Wider market matters will likely dictate price action through the remainder of the day given the lack of scheduled risk events on the local docket.
• Next week’s local focus will fall on the latest BoE decision (expect our full preview of that event to cross on Tuesday).