GBP Swaps: Gilts lag despite data, supply dearth

Gilts lag despite data, supply dearth

A final week of supply calm before the storm was not enough to allow gilts to keep track with rallies of 8bps in 10y USTs and 5bps in Bunds today. Shortly after the 4:15pm close today the 10y gilt yield was -2.2bps at 4.415%, while 30y was unchanged at 4.63% and the 2y was -6bps at 5.21%, driven there by a double digit rally in 2y UST yields.

Weak US jobs and consumer confidence were the straightforward drivers of today’s moves across all major markets. The 2y gilt yield was at 5.32% before the 3pm London-time release of the JOLTS and Conference Board Consumer Confidence data, and the subsequent 10bps rally. This left the 2y ASW a relatively modest 1bp tighter at 62bps at the close, while 10y was -0.4bps at -8bps and 30y +0.6bps at -57.8bps.    

SONIA futures joined the rally with moves of +2 ticks in the front end and +11 ticks in the long end amid extremely thin volumes. In a week that is fairly light on data, below-forecast BRC shop price inflation couldn’t save gilts from underperforming, despite an issuance break this week. Next week’s scheduled 2068 gilt syndication and sale of 4.5% 2028s will provide the first test before the BOE’s APF unwind sales start in two week’s time.

In linkerland there was little obvious response to the faint glimmer of hope offered by the BRC data (shop prices +6.9% yoy in August versus +7.6% in July). RPI swaps fell 1bp across the curve and linker breakevens were unchanged across the curve as that market clung on firmly to apathetic Summer trading conditions.

BNPP: 25bps more of hikes on the way

Strategists at BNPP took a quick look today at what the Autumn might have in store for the GBP fixed income market and for MPC policy steps. They note that “in his speech at Jackson Hole (on Friday), Deputy Governor Ben Broadbent didn't serve up any surprises. Instead, he re-emphasised the latest BoE messaging: that the duration, not the peak, of restrictive rates is at the forefront of their minds.”

“We view this recent change in messaging as guiding towards the end of the BoE's tightening cycle and expect one further 25bp hike at their (Sep 21) meeting.”

Looking into the shorter term future, BNPP continues: “Chief economist Huw Pill speaks this week. Previously, Pill has been vocal in his discussion of the need to balance the risk of over tightening with the risks from high inflation. We'll be on the lookout for if he returns to this argument as another guide that the BoE are close to the end of tightening cycle.”

New issues: OSB Group

• Chatham-based mortgage and financial services company OSB Group has mandated Citi, Goldman and Lloyds to lead a GBP-denominated  5yNC4 bond.