Pill Provides A Fresh Bid

Reaction to the previously covered comments from BoE chief economist Pill, which came in the last hour of Monday’s futures session, and to a lesser extent, the latest Kantar domestic food inflation reading (which fell to single-digit Y/Y growth for the first time in 16 months), provides support for gilts during early Tuesday trade.

• Lower crude oil prices will also be feeding into early price action.
• That allows gilt futures to pare around half of Monday’s losses, with the contract last +45 or so.
• Cash gilt yields are 4.5-8.5bp lower, with the front end of the curve outperforming, allowing the curve to bull steepen.
• SONIA futures last show -0.25 to +8.5, with the strip twist flattening. The early outperformance for the front end of the reds remains intact, with most contracts at/just shy of recent session bests.
• BoE-dated OIS softens by 0.5-8.5bp across the liquid contracts, with the strip flattening. A full 25bp cut is now priced through the end of the August ’24 MPC, aided by Pill’s comments.
• Today will see the DMO come to market with GBP3.75bn of the 10-year 4.625% Jan-34 gilt. This will be the first reopening of the gilt after it was launched a month ago. Outright yields are off recent highs, with the potential for the stabilisation to entice buyers. RV may be a more notable consideration here, with 10s operating towards the cheaper end of 3-month ranges on both the 5-/10-/15- & 5-/10-/20-Year butterflies.