Off Early Highs, But Comfortably Firmer On Day

Gilt futures are shy of early bests, with the AHE-driven rally running out of steam alongside a pullback from best levels in Bunds.

• The latest 5-Year gilt auction saw an extension of the recent trend of generally sub-par demand, which wouldn’t have aided bulls.
• Futures last print +95, a little above 98.45. That leaves the contract ~30 ticks shy of the top of its ~50 tick range. Friday’s opening gap lower in the contract was closed during the early rally.
• An extension of the early rally would leave bulls looking to the Dec 6 high (98.97).
• Gilts yields run 7.5-9.5bp lower on the day, with the wings still lagging.
• 10-Year yields found a base around 3.95% before retracing to ~3.97%. Last week’s low at 3.941% (98.84 in futures today) and 3.90% (99.22 in futures today) present the immediate reference points on that front.
• SONIA futures last +0.5 to +12.0.
• BoE-dated OIS is little changed to 11bp softer through ’24 MPC contracts. ~23.5bp of cuts are now priced through the June ’24 MPC. ~85bp of cuts are seen through ’24 on the whole.
• STIRs are off dovish session extremes given the limited pullback in gilts.
• There isn’t much in the way of local event risk to flag for the remainder of today, with broader macro focus set to fall on U.S. CPI data.
• Tomorrow’s monthly economic activity data presents the next domestic point of note but that shouldn’t be a gamechanger for Thursday’s BoE decision.