GBP Swaps: Gilts get high on supply

Yo yo
Yo-yoing gilts ended lower in yield today after the market took down its second dose of supply in less than 24 hours.

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  • Gilts get high on supply

  • New issues: Clydesdale, EIB


Gilts get high on supply

Gilts began the session rallying today, before softening into supply, then rallying again later in the day. This morning’s sale of the 3.75% 2053 saw the good people of the DMO sell £2.75bn gilts at an average 4.704% yield and 2.38 times bid/cover. This is a stronger demand ratio than the previous auction, but post-tap it sold off to reach 4.75%, before clawing itself back to a respectable 4.715% at the 4:15pm close, having briefly dipped below 4.70% 90 minutes after the sale.


This might prove a significant tap, according to BNPP strategists this morning. “With the next 12m QT envelope announcement a few days away, it will be of interest to see investor appetite for long supply,” it noted. Forecasts suggest the BOE will decide to increase the QT workload to £90bn a year from the current £80bn.


Also at the close, the  10y benchmark gilt yield closed -4bps at 4.34%, the 30y benchmark was, as noted, at 4.715%, -1bp, while the 2-year was -3bps at 4.98%. In ASWs the 2y was -0.2bps at 55.5bps, 5y was -1bp at 28.7bps, 10y was +0.3bps at -14.7bps and the 30y was -1.3bps at -63bps.


Over in linkerland, ahead of tomorrow’s RPI data, the 5y breakeven was +4bps at 4.06%, while longer maturities were +/- 1bp across the board.


SONIA performed solidly, rallying 1 tick in the front-end and by 4-5bps in pretty much all other contracts. The solid performance of the front-end today seems to reflect hopes that there might be some kind of upside surprise lurking in tomorrow’s inflation data, where RPI’s younger sibling, CPI, is forecast to come in at +7% yoy for August versus +6.7% in July.  


Such an outcome would support the predicted outcome of a 25bps hike to a possible peak of 5.5%. But as Barclays strategists noted today, there is scope for hope. “The BoE is likely to hike a final time this week, though an especially weak August CPI could prove us wrong. Markets are in the same camp, pricing in c.21bp for this week’s meeting,” it said. So, as far a s the market view for the MPC,  it’s not quite all over bar the shouting. Yet.


New issues: Clydesdale, EIB

  • Clydesdale Bank has priced a £500m, SONIA ++60bps 5y FRN at par via Banco Santander, Barclays, HSBC and Lloyds.


  • The EIB today priced a £250m, 5y Sustainability bond tap at gilts +35bps via Citi, RBC and TorDom.