Two-Way Flows Seen Early On, Gilts Flat To A Touch Firmer As Labour Market Data Digested

The softer components of the UK labour market data allowed Gilt futures to gap higher at the open (tailwinds from richer U.S. Tsys also evident). That left the contract above highs observed over the last couple of sessions before a pullback from best levels on the hot wage data/digestion of the totality of the data, leaving the contract +10. Cash Gilts sit flat to 1bp richer across the curve.

• Monday saw BoE Governor Bailey reiterate expectations for a marked fall in inflation, while cautioning that wages are still growing too quickly (this morning’s figures will cause further headaches on that front). Bailey also flagged pipleline impact from already delivered tightening, which has not been felt yet.
• SONIA futures bounce around in both directions in early Tuesday trade, initially cheapening on the wage data, before richening on the previously alluded to upticks in unemployment/claimant count, then paring back from best levels alongside Gilts. The back end of the whites through the front end of the greens sits 1.5-3.0bp firmer, while the remainder of the strip is little changed to a little softer on the day.
• BoE-dated OIS pricing has come in, at the margin with terminal policy rate pricing showing just over 6.40%.
• The local docket is limited for the remainder of today.