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Underperforming Bunds / USTs ahead of the Spring Statement

GILTS

Gilts are the outperformers in core fixed income this morning, with both 2-year and 10-year yields down more than corresponding moves in Germany/US. This is despite both headline and core inflation coming in 0.2ppt above consensus this morning at 6.2%Y/Y and 5.2%Y/Y respectively.

  • Gilts with a maturity in excess of 5-years saw cycle highs for yields yesterday, but are moving a bit lower today. 5-year and below gilts are still not back to their mid-February highs.
  • 10-year yields remain below the 1.749% peak seen in October 2018 while 30-year yields at at their highest since May 2019.
  • The big event today will be the release of the FY22/23 alongside the Chancellor's Spring Statement. A median of 12 GEMM expectations for the remit comes in at GBP153.5bln with estimates ranging from GBP124.5bln to GBP211.2bln. Of these, nine estimates were in a range of GBP135-176.6bln (one lower, two above GBP200bln). For reference, gilt sales for FY21/22 totalled GBP194.7bln, against an initial target of GBP295.9bln. So expectations are that this year’s remit will be around half what was originally proposed for the soon-to-end fiscal year. Note that this was a significant upside surprise to expectations.
  • The long-end of the gilt curve is likely to see the biggest moves based on today's remit announcement.
  • 2y yields down -3.4bp today at 1.369%, 5y yields down -2.9bp at 1.428%, 10y yields down -2.8bp at 1.679%, 30y yields down -2.4bp at 1.897%.
  • 2s10s up 0.6bp today at 31.0bp, 10s30s up 0.4bp at 21.8bp.
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