Twist Steepening, Futures A Little Below Unch., Inflation Exp. Support Front End Further

A softening in July’s domestic Citi/YouGov inflation expectations (the 1-Year ahead measure fell to 4.3% from 5.0% in June & the 5- to 10-Year measure eased to 3.2% from 3.3%) helps limit any Gilt losses linked to Tsy moves in recent trade. That leaves Gilt futures running 10 or so ticks cheaper on the day. Meanwhile Cash Gilts sit 5bp richer to 1bp cheaper as the curve twist steepens. The broader risk-off price action surrounding Fitch’s one-notch downgrade of the U.S., richer SONIA strip and softer BoE-dated OIS strip continue to underpin the front end (UK STIRs have firmed further on the back of the aforementioned expectations print).

• SONIA futures run 0.5-7.5bp richer, with the front end of the reds leading.
• BoE-dated OIS continues to show around 34bp of tightening for tomorrow’s meeting, while terminal policy rate pricing has eased to 5.84%.