Weakness Extends

Gilt futures traded sharply lower yesterday and the contract has started today’s session on a bearish note as the move extends.

• That leaves the contract -55 at 91.30.
• Bears have forced a break of key support at the Aug 17 low (91.47). This confirms a resumption of the technical downtrend and paves the way for a move towards the Oct 12 2022 low (90.38).
• Cash gilt yields last print 0.5-5.5bp higher, with the 7- to 10-Year zone leading the weakness. 10-Year yields haven’t managed to breach their August high as of yet.
• The Asia-Pac reaction to, and extension of, Wednesday’s cheapening move has been broadly cited as the driver of the latest leg lower in core global FI markets.
• SONIA futures operate of session lows, although the bearish steepening move remains evident on the strip, with contracts last flat to 6bp lower.
• BoE-dated OIS last shows 0.5-4.5bp firmer, also off hawkish session extremes. Terminal policy rate pricing now shows ~22bp of further tightening for the current cycle i.e. nearly 90% odds of one further rate hike are priced.