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Still moving lower

GILTS
  • Gilts continue to move lower and continue to underperform both USTs and Bunds.
  • This morning's very strong labour market report was the catalyst for the moves lower on the open, and we have continued to see moves lower through the day as the market reassesses the BOE's hiking path.
  • Expectations for this year peaked around midday BST while for 2023 expectations continue to drift higher. Markets now price in 145bp by March 2023 with a more than 50% probability of one of the next three meetings seeing a 50bp hike.
  • The broader macro environment (China reopening hopes), the tone of Bailey et al at the TSC yesterday and a better than expected US retail sales print have all helped gilts to continue to move lower while the gilt curve continues to bear flatten.
  • As we illustrate below, today's moves have seen more than half of the fall in yields from the pre-BOE levels with 30-year yields almost back to where they were ahead of the May meeting.
  • 2y yields up 17.6bp today at 1.398%, down -19.4bp since pre-BOE
  • 5y yields up 16.8bp today at 1.525%, down -16.7bp since pre-BOE
  • 10y yields up 12.3bp today at 1.852%, down -9.1bp since pre-BOE
  • 30y yields up 8.6bp today at 2.061%, down -0.6bp since pre-BOE
  • 2s10s yields down -5.2bp today at 45.5bp, down 10.3bp since pre-BOE
  • 10s30s yields down -3.7bp today at 20.9bp, down 8.5bp since pre-BOE
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