Rally Extends On Broader Risk-Off Trade

Gilt futures rally above 101.00 on the broader risk-off price action seen since Friday’s close. Contract prints as high as 101.11 before fading back to 100.90.

• Resistance seen at the 2.00 projection of the May 29- Jun 4-10 price swing (101.18).
• Yields are 1.5-6.5bp lower across the curve, recent bull steepening extends.
• Bulls eye 3.50% in 2s, 4bp below prevailing levels.
• 10s are below 3.80%, the Feb low (3.726%) presents the next point of interest.
• 2s10s hits fresh ’24 highs, 5s30s capped ahead of January peak.
• SONIA futures also comfortably off highs, last 0.5 to 14.5 firmer on the day.
• Final UK services PMI data is due today but expect the broader market tone to dominate.
• Weekend news flow saw continued speculation surrounding a potential increase in government borrowing.
• Some suggest that Chancellor Reeves will alter the debt measure that the fiscal rules are governed by, owing to the pressure derived from losses on BoE bond holdings.
• Note that Reeves starts a three-day trip to the U.S. & Canada today, as she looks to sell the UK as “a stable place to do business”