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Outperforming across the curve

GILTS
  • Gilts are the outperformers in core fixed income space so far today. Initially gilts had decoupled from Bunds and were trading more in line with USTs, but over the past couple hour or so as Treasuries have reversed some of their overnight gains, gilts have remained buoyant.
  • The front-end of the SONIA curve has not moved lower anywhere near to the extent of Euribor Whites let alone Eurodollar Whites.
  • The terminal rate priced into the SONIA curve is not far off 3.50%, despite having moved lower today.
  • Of course tomorrow will see the FOMC rate decision, but the following day's MPC meeting is also live. The sell-side consensus is unanimously looking for a 25bp hike (as a base case) but most acknowledge risks of a 50bp hike. Markets are currently pricing around 33bp (around a 1/3 probability of 50bp with 25bp fully priced).
  • We think part of the reason for the outperformance of gilts is that the market doesn't believe that the MPC is as behind the curve as the Fed or ECB, with the BOE having started QT and raised rates before its peers.
  • 2y yields down -9.6bp today at 2.013%, 5y yields down -9.6bp at 2.126%, 10y yields down -7.1bp at 2.456% and 30y yields down -6.2bp at 2.576%.
  • 2s10s up 2.6bp today at 44.4bp and 10s30s up 0.8bp at 11.9bp
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