GILTS: Recovery From GDP-Driven Lows Extends As Energy Prices Soften

Gilts consolidate their recovery from opening lows.

• Lower crude oil prices (linked to Trump’s desire for a resolution surrounding the Ukraine-Russia conflict and Hamas seemingly agreeing to stick to the agreed hostage release schedule) helped bonds recover.
• This came after hawkish leaning comments from BoE chief economist Pill and firmer-than-expected UK GDP data weighed. Neither of those were gamechangers for the BoE, at least in our opinions.
• Futures +29 at 92.74 (92.36-78 range).
• Yesterday’s low (92.31) went untested during the early weakness and provides initial minor support. The recent bullish technical cycle in the contract remains in play.
• Yields within 1bp of yesterday’s closing level, curve twist flattens.
• 10s spreads vs. Bunds 1bp wider at ~207.5bp.
• GBP STIRs also unwound some of the initial hawkish reaction as gilts recovered.
• BoE-dated OIS prices 56.5bp of cuts through year-end vs. ~52.5bp at one stage following the GDP data and ~60bp at yesterday’s close.
• 3.5bp of cuts priced for March, 23bp through May and 30.5bp through June (we still look for the next cut to come in May).
• SONIA futures -1.5 to +0.5.
• U.S. data and geopolitical matters should dominate for the remainder of the day, with little of note left on the UK calendar.