Post-Fed Rally Holds

Gilts hold most of their early Fed-driven rally, despite some noise surrounding the European PMI readings.

• Futures last +60 at 96.25, with the contract comfortably within the range witnessed during recent sessions.
• The overarching bearish technical picture remains intact for the contract, with initial resistance seen at the 29 Apr high (96.57).
• 5s outperform on the curve, with benchmark yields 3.5-6.5bp lower on the day.
• SONIA futures are just off session highs, last flat to +10.0.
• BoE-dated OIS contracts hover around dovish session extremes, showing ~43.5bp of ’24 cuts, with the first 25bp step fully priced through the end of the Sep MPC.
• Plenty of desks argue that GBP STIRs have exhibited an exaggerated beta to the recent U.S. data developments and hawkish Fed repricing.
• While we don’t disagree, further slowing of the UK CPI/wage pressures and related BoE communique is probably required to trigger greater divergence in Fed & BoE pricing.
• The UK calendar is essentially empty today, although local elections could provide the catalyst for a leadership challenge within the ruling Conservative Party if they perform poorly.