Softer Than Expected Flash Services PMI Lends Second Round Support

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.