Off Labour Market-Induced Bests, Breeden Comments Eyed

The post-data move away from best levels in EGBs helps gilts further away from session bests.

• That leaves gilt futures +50, after a brief and limited foray above last week’s highs failed to result in a break of 95.00 (short-term technicals remain bearish sub-95.79).
• Cash gilts 1-6bp richer, bull steepening.
• The initial rally & steepening impulse was fuelled by labour market data that revealed the latest signs of loosening, although wages remain at elevated levels.
• BoE-dated OIS softened in the wake of the release. The liquid contracts now sit off dovish extremes, +0.5bp to -5bp as the strip twist flattens.
• ~21.5bp of tightening is priced for this month’s meeting, while terminal policy rate pricing is below 5.65% i.e. markets continue to price less than 2 further 25bp hikes from the BoE.
• SONIA futures sit flat to +8.5, with greens outperforming.
• Comments from BoE MPC nominee Breeden have pointed to weak UK economic activity, along with upside risks to the Bank’s inflation outlook. Her appearance in front of the Treasury Select Committee is ongoing. No market reaction thus far.
• Next week’s CPI release presents the next major point of note on the domestic data docket, with monthly economic activity data slated for tomorrow.