Pressured A Little, New Long Gilt Mandate Issued, BoE Pricing Off Yesterday’s Lows

Gilts trade cheaper on the day, given the retracement of U.S. Tsys since yesterday’s cash close (which came right around the time that the NY morning bid in Tsys ran out of steam) and early weakness in Bunds, with the major benchmarks running 6-8.5bp cheaper as intermediates lead the weakness. Gilt futures are showing -45 or so around 101.40, ~40 ticks off yesterday’s low and ~15 ticks off this morning’s base.

• This morning saw a mandate issued for the new Oct-2063 Gilt, currently planned to take place in the week commencing 15 May 2023 subject to demand and market conditions (we previously suggested that issuance is likely to take place on Wednesday 18 May for a nominal GBP 3-4bn), in line with previous DMO communique.
• BoE-dated OIS pricing has also moderated from the implied-rate lows that printed late yesterday, with BoE-dated OIS printing 1-7bp higher vs. yesterday’s closing levels. As we stand at present, ~23bp of tightening is showing for next week’s BoE, with a cumulative ~62bp of tightening priced through September, pointing to a terminal rate of 4.791% in SONIA terms or 4.86% in BoE benchmark rate terms.
• Domestic news flow has been dominated by the local elections. The ruling Conservative party is performing poorly, albeit roughly in line with the pre-election projections. PM Sunak’s initial comments have been defiant, while the opposition Labour party believe that the early indicative results point towards their ability to form a majority government in the next general election.