Twist Flattening To The Fore As PMI Wage Signal Reverberates

Gilts twist flatten on the day with the front end weighed by the hawkish repricing on the BoE-dated OIS strip flagged in our recent STIR bullet, while the longer end is supported by stagflation/recession worry emanating from the expected degree of tightening. A quick reminder that the hawkish words surrounding wages (and the knock-on impact for BoE policy) within the details of the UK PMI print has allowed the hawkish BoE repricing run to extend further, providing pressure for Gilts after the early, Eurozone PMI-related richening.

• Still, Gilt futures are +90 or so on the day, ~80 ticks shy of best levels, with a light bid seen in recent trade, helping the contract away from lows. Cash Gilts twist flatten, with 6bp of cheapening to 7bp of richening seen across the major benchmarks, as 10s outperform. That has allowed the 2-/10-Year curve to register fresh multi decade extremes when it comes to the level of inversion witnessed.
• PM Hunt recently outlined areas of support for mortgage holders, avoiding any direct fiscal support which could fan the inflationary flames further, meeting broader expectations.
• Looking ahead, the BoE will announce its Q3 active Gilt sales schedule later this afternoon.