Twist Steepening Holds Into BoE

Gilts are little changed from our previous update as we work towards the latest BoE decision (with 33bp of tightening priced into the OIS strip and 45/61 economists surveyed by BBG looking for a 25bp hike vs. 16/61 looking for a 50bp step). That leaves futures -50 or so, off session lows, while cash Gilts run 5bp richer to 5bp cheaper as the curve twist steepens.

• Positioning in Gilt futures is long, per our latest positioning indicator report, although longs were trimmed last week.
• Technically, Gilt futures traded lower last week and in the process breached support at 96.11, the Jul 21 low. This highlights a bearish threat and this week's move down reinforces this condition. Note that the 20-day EMA has also been breached - a bearish development. Today's extension lower has resulted in a break of 94.58, the Jul 17 low and this opens 94.20 next. Initial firm resistance is at 96.19, the Jul 31 high.
• SONIA futures are +4.5 to -3.0, twist steepening, while BoE-dated OIS terminal policy rate pricing hovers just below 5.85%, with participants paring hawkish bets in recent weeks as the combination of tier 1 data and a lack of meaningful BoE policy guidance facilitated a dovish repricing after the aggressive hawkish move seen into the early part of July.