EGBS: /SWAPS: Commerzbank Reiterate Long End Swap Spread Shorts

Gilts follow global peers lower.

• Futures breach initial support at last week’s low (89.00), basing at 88.96, before a bounce to 89.25.
• Yields 2-4bp higher across the curve.
• 10s as high as 4.901% this morning vs. last week’s high of 4.921%.
• 30s near last week’s multi-decade high (5.473%).
• 2s10s within 2.5bp of last year’s high, last 30.3bp vs. ’24 peak of 32.8bp.
• Gilt/Bunds ~1bp wider at 225bp.
• Fibonacci supports located below worst levels, 88.87 and 88.53 eyed.
• Goldman Sachs’ base case remains that “slowing growth momentum and a broader disinflationary trend will allow the BoE to cut more than markets are expecting, which will help the market digest elevated duration supply.”
• They also believe that the rise of fiscal risk premia suggests “the skew of risks is towards further budgetary restraint, which should ultimately reduce worries about the inflationary effect of the budget.”
• On that front, the weekend saw Chancellor Reeves stress that the fiscal rules in are "non-negotiable", with growth remaining the government's top priority.
• GBP750mln of short-dated APF sales from the BoE due this afternoon.
• See our pre-gilt open STIR bullet for greater colour on this week’s UK data & BoE speakers.

RXG5 130/129ps, sold at 20 in 4k.

• RES 4: 1.4674 2.0% 10-dma envelope
• RES 3: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
• RES 2: 1.4508 3.236 proj of the Oct 17 - Nov 1 - 6 price swing
• RES 1: 1.4467 High Dec 19 
• PRICE: 1.4424 @ 08:14 GMT Jan 13 
• SUP 1: 1.4345/4280 20-day EMA / Low Jan 6  
• SUP 2: 1.4232 Low Dec 17 
• SUP 3: 1.4190 50-day EMA
• SUP 4: 1.4011 Low Dec 5

The trend set-up in USDCAD remains bullish and the recent move down is considered corrective. The latest pause in the uptrend appears to be a flag formation - a bullish continuation signal. Note too that MA studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4508 next, a Fibonacci projection level. 1.4345, the 20-day EMA, has recently been pierced. A clear break of the average would open 1.4190, the 50-day EMA.