GBP Swaps: Powell followed by bear-flattening; Team 2063

Federal Reserve front
Gilts sold off in the wake of hawkish Powell comments at Jackson Hole. But the real battle for direction will only begin to restart next week.

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  • Powell followed by pause, then bear-flattening

  • DMO announces 2063 syndi; Size and spread talk

  • New issues


Powell followed by pause, then bear-flattening

A slight bounce in the Gfk consumer confidence survey, from -30 in July to -25 in August, was the only UK data out today, but it was to the US that the gilt market looked for direction, with Fed chief Powell speaking at Jackson Hole.


Powell repeated the mantra that the US inflation rate remains too high and that the Fed is ready to take action if necessary, which initially failed to cause any alarm in the 2y UST beyond a brief spurt of volatility, while the front end of gilts continued to trade in a soggy, but tight, range all day.


But, as often happens, market participants took a little time to reflect on the undoubtably wary, bearish tone, looked at their watches and diaries, and in London anyway, decided that with a three-day weekend just hours away, the better part of valour was caution, resulting in a sharp bear-flattening lurch.


While the longer ends of the gilt curve were only slightly softer, a 7bps rise in the 2y UST yield post-Powell found an eager echo in 2y gilts, where the benchmark yield is currently +5bps from last night’s close at 5.00%. With 10y yields off the highs but +2bps approaching the close that’s a 3.3bps bear-flattening in 2s/10s while 10s/30s is 2.4bps flatter and 30s/50s down 0.4bps.


The SONIA strip softened to be -2 ticks in the front end and as much as 11 ticks lower in Mar 2025, but volumes were low. And in inflation, cash breakevens rose 2-4bps led by the wings, while real yields were +1bps in the front end and -4bps in 30y.


With the last full week of August now ending, the Summer phoney war is nearly over. Next week sees largely second-tier economic data in the UK, including Nationwide house price data (forecast -0.4%/-4.9%in August), which has attracted a little more interest lately.  But with a gilt syndication now looming and the broader supply machine revving up, the scrutiny on the MPC and on the market’s capacity to absorb all the gilts on sale, will start to intensify.  



DMO announces 2063 syndi; Size and spread talk

The good people of the DMO have appointed BofA, BNP Paribas, Deutsche Bank, JP Morgan and Santander as the lucky leads charged with guiding next month’s syndicated tap of the 4% 2063 gilt through the market.


Looking at the expected size of the syndi, strategists at RBC said recently that “The DMO plans to raise £18bn via 4 transactions in its long conventional gilt syndication programme. It has already raised £5.36bn last quarter via the syndicated launch of the 4%63s. Hence, this would imply an even flow transaction size of around £4.2bn cash (c. £4.5bn nominal), taking the amount standing to c.£10bn and in-line with that on the 1e73s, bringing around £7.8mn/bp of DV01 to the market.”


And looking at the possible pricing, RBC said that “our yield vs maturity fitted curve puts fair value (FV) at 2H65 + 2.9bps . A similar analysis on the yield vs duration fitted curve puts FV at 2H65 + 6.2bps. Taking the average results of these two spline results, we get a FV estimate of around 2H65 + 4.5bps.”


New issues

  • People for Places this week priced a £105m tap of its 5.75% Feb 2055 bond through GS, along with a £25m reopening via NatWest.  


  • Deutsche Bank today priced a sprightly £30m, 4.75% 1y 2024 bond. Self-led.