GOLD: Making an attempt at the all time record high

Major EGB futures have risen alongside Gilts following the lower-than-expected UK CPI reading this morning, with Bund futures +14 ticks at 130.61 at typing, just off session highs of 130.74.

• German cash yields are 0.5-3bps lower, with the belly outperforming. The 10-year Gilt/Bund spread has tightened almost 6bps on the session following the UK data.
• 10-year EGB spreads to Bunds have tightened, with BTPs outperforming. After reaching a high of 124bps on Monday, the BTP/Bund spread is now back at ~116.5bps.
• Today's 30-year Bund auction saw average results, while the EFSF has sent an RFP for an upcoming transaction, in line with MNI’s expectations. We expect the transaction to take place on Monday or Tuesday next week.
• Eurozone industrial production was in line with consensus expectations and MNI’s tracking at 0.2% M/M (vs an upwardly revised 0.2% prior).
• ECB speakers (Lane overnight, de Guindos and Villeroy this morning) have re-iterated the base case of further policy easing, but were not market movers.
• Global focus remains squarely on this afternoon’s US CPI report (1330GMT).

Gilts off morning highs after softer-than-expected CPI data drove a rally at the open.

• Markets ignore the fact that the downside surprise was mostly driven by volatile components.
• The recent increase in short positioning in futures (flagged in recent days) will be contributing to the rally.
• Limited weakness following the 4.25% Jul-34 gilt auction, which generated the lowest cover ratio for an offering of the line since ’23, countered by an average tail (there was risk of a wider tail given recent gilt weakness/vol.).
• Futures +80 at 90.05, range 89.68-90.19.
• Bearish trend in futures intact, although today’s data puts that at risk. Initial support and resistance located at 88.96 and 90.31, respectively.
• Yields 6.5-11bp lower.
• 10s ~25bp off end ’24 highs, ~11bp off early ’25 highs.
• 5s30s on track for a fresh cycle closing high, last 86.4bp.
• 10s spread vs. Bunds ~5.5bp tighter at 218bp, driven by CPI.
• BoE-dated OIS showing 51bp of cuts vs. 36.5bp late yesterday (latter represented a fresh cycle hawkish extreme).
• SONIA futures +2.5 to +11.0.
• Dovish flow seen in SONIA options this morning (covered earlier).
• Comments from BoE dovish dissenter Taylor due this afternoon (16:30 London), with particular focus on his comments in light of the recent market adjustments.