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Softer Than Expected Flash Services PMI Lends Second Round Support

GILTS

Gilts lean on softer than expected flash services PMI data for support, with the press release showing growing worry re: a recession and a loosening labour market, compounding the weak demand narrative.

  • Still, the contract is short of early highs after the Germany manufacturing PMI data prevented bulls from forcing a challenge of yesterday’s post-BoE spike high.
  • Cash gilts run 6-7bp richer, with 50s outperforming at the margin. We noted earlier that this may be a result of the relatively small size of next week’s 1.125% Oct-73 tap (GBP750mn).
  • SONIA futures show 1.5-6.5bp richer on the day, at/around best levels. Reds outperform.
  • BoE-dated OIS come in and the strip flattens, with ~16bp of tightening showing for the remainder of the cycle, as the latest round of disappointing domestic data adds to the questions re: the likelihood of the BoE delivering another rate hike.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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