Off Lows Alongside Peers, BoE Pricing Back From Cycle Extremes

Gilts have moved away from session lows alongside global peers, after bears only forced a shallow look through year-to-date extremes in both futures and 10-Year yields following this morning’s firmer-than-expected UK CPI data.

• Relatively soft demand metrics at the latest 7-year gilt auction helps cap the recovery from lows.
• Futures last little changed on the day around 96.30.
• 96.00 held in the contract, with lows of 96.01 registered.
• Fresh weakness would allow bears to target the 1.764 projection of the Mar 12-15-22 price swing (95.96). A move beyond there would expose the 2.0% projection of the same move (95.41). Bulls need to force the contract back above the Feb 29 low (96.83), with the bearish impulse deepening in recent sessions.
• Yields are 2bp higher to 1bp lower as the curve twist flattens.
• 10s have pierced their November 24 high and a fresh move higher would target the Nov 13 high (4.365%).
• SONIA futures have also recovered from lows, last 0.5 to 4.0 lower through the blues.
• BoE-dated OIS shows ~39bp of ’24 cuts after an early foray below 35bp.
• Yesterday evening’s comments from BoE Governor Bailey, plus the broader bounce in core global FI markets and the low level of absolute cuts priced for ’24, probably factored into the recovery.
• Comments from BoE’s Bailey, Greene & Haskel provide the domestic focal points from here.