GILTS: Curve Steeper, Lagging Bunds
Mar-27 08:18
A modest rally for gilts, with U.S. tariff implications driving European markets.
- Futures well within yesterday’s range, +7 at 91.40.
- The bearish technical theme remains intact in the contract, initial support at yesterday’s low (90.75) protects the bear trigger at the March 6 low (90.71).
- Meanwhile, initial resistance is located at the 20-day EMA (91.94).
- Yields 0.5-2.0bp lower, steepening, with curves already off yesterday’s Spring Statement lows.
- Psychological resistance levels at 50bp in 2s10s and 100bp in 5s30s remain intact on a closing basis.
- The introduction of the programmatic gilt tender meant that the readthrough from yesterday’s Statement wasn’t as negative for the long end as it otherwise would been, which, along with a gilt remit that was at the lower end of expectations, helped flatten curves.
- Medium-term, increased gilt issuance and easier BoE policy is expected to continue to promote curve steepening.
- Gilts lag Bunds, 10s ~3bp wider at ~196bp, given exposure to the latest U.S. tariffs.
- Comments from BoE dove Dhingra are due shortly (08:30 GMT).
- On the supply front, GBP3.0bln of 4.00% Oct-31 gilt supply is due this morning.
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GILT AUCTION PREVIEW: 1.125% Sep-35 I/L gilt auction
Feb-25 08:18
- The DMO will kick off issuance for the week this morning with the first reopening of the 10-year 1.125% Sep-35 linker for GBP1.6bln nominal (following its launch a month ago).
- The launch auction was for a smaller GBP1.5bln amount and saw a bid-to-cover of 3.12x.
- This linker replaced the 0.75% Nov-33 linker as the on-the-run 10-year issue. Auctions for that linker were strong with the lowest bid-to-cover in the five auctions so far this fiscal year at 2.89x (with a mean of 3.16x and 3.39x seen in the last auction in December). All of these auctions have been for GBP1.5bln nominal.
- We expect another strong linker auction.
- Timing: Results will be available shortly after the bidding window closes at 10:00GMT with a further GBP400mln available to successful bidders at the PAOF.
GILTS: Futures Pierce Resistance On Tariff Worries
Feb-25 08:16
Gilts rally at the open on tariff-driven worry, with reports pointing to wider EU countermeasures against U.S. tariffs and the U.S. pushing for tougher global restrictions surrounding Chinese semiconductor trade.
- Futures pierce initial resistance at the 50-day EMA (92.83), topping out at 92.91, before fading back to ~92.80 as the wider risk-off moves start to run out of momentum (equities off lows, DXY & T-Notes off highs)
- A fresh extension higher would expose the Feb 13 high (93.50) and reintroduce some momentum to the bullish technical cycle.
- Yields 2-3bp lower, light bull steepening.
- The DMO will come to market with GBP1.6bln of 1.125% Sep-35 I/L paper this morning.
- Elsewhere, we will get comments from BoE chief economist Pill, as he delivers closing remarks at the Bank’s BEAR conference.
EQUITIES: Big buying going through against the lower Equiy Cash open
Feb-25 08:15
- The Tech Index (SX8P) did gap lower on the Open, but the Estoxx futures (VGH5) is seeing BIG buyer on the Cash open, a 32 points bounce off the low, with over 20k lots going through in the past 5 minute window.
- VGH5 has fully recovered to trade back to flat on the Day.
