Soft Pricing At Long End Supply And BoJ Speculation Sees Gilts Off Highs

Soft pricing metrics at the latest round of 40-Year gilt supply allow gilts to move away from session highs.

• While the bid to cover at the auction wasn’t low, pricing dynamics saw the LAP printing comfortably below prevailing mids at the time of the auction cut off.
• The latest round of speculation surrounding adjustments to BoJ bond purchases also provides some weight.
• A reminder that broader risk-off trade, including lower oil prices, supported core global FI markets early today.
• Gilt futures fall back to 97.30 post0-auction vs. highs of 97.53.
• A break of key short-term resistance (97.44) had deepened the bullish threat before the pullback.
• Fresh moves higher would target the May 17 high (98.12).
• Benchmark yields are either side of unchanged, with the early bull flattening morphing into twist flattening as gilts come back from highs.
• SONIA futures are flat to +2.5, while ’24 BoE-dated OIS contracts are little changed on the day, showing ~36bp of ’24 cuts.
• ’24 & ’25 SONIA futures continue to recover from recent cycle lows, but are off session highs,
• UK headline flow is still dominated by political matters, ahead of today’s initial Sunak-Starmer TV debate (21:00 London).
• Labour continues to hold a huge lead in the opinion polls, while Nigel Farage has announced his intention to run for a seat, leading the Reform UK Party.
• There is little to no scheduled UK data/event risk noted ahead of the previously flagged political debate.