Off Best Levels, Light Bull Steepening Seen

Gilt futures are shy of best levels of the day, last showing +15.

• Cash gilts are 1-3bp richer, bull steepening.
• The early bid followed a similar move in wider core global FI markets, with a negative lead from Asia-Pac equities, perceptions re: Israeli-Palestinian tensions and softer than expected Chinese inflation data supporting.
• Comments from BoE Governor Bailey and UK Chancellor Hunt have been inconsequential for markets.
• The former pointed to more work to do re: inflation, while noting progress has been made. He also noted that policy settings are restrictive, which is a requirement at present.
• Hunt played down the likelihood of near-term tax cuts once again, while pointing to higher interest costs which have resulted in a deterioration in the UK’s financial position. As a result, he stressed that the Autumn Budget will be balanced, with caution re: the international situation set to be a factor.
• SONIA futures last show flat to 5.5bp richer through the blues, with the strip flattening.
• BoE-dated OIS is little changed to 2bp softer across the liquid contracts, with that strip also flattening.