EUROPEAN FIXED UPDATE: Gilts unchanged ahead of significant fiscal changes from the UK, USTs await Fed speak post-Waller

Analysis details (10:20)

• Gilts take centre stage as we approach Chancellor Hunt’s Autumn Statement from 11:30GMT (newsquawk preview here) a statement which is set to attempt to fill the circa. GBP 50bp hole in finances via similarly sized measures of tax cuts and spending reductions. Heading into the announcement, Gilts are essentially unchanged. Currently, the benchmark resides at the lower-end of 106.32-107.17 parameters with the associated 10yr yield at 3.15%; a figure that is only 15bp above the current BoE base rate and significantly shy of the 4.632% peak seen in wake of the former PM/Chancellor’s ‘mini-Budget’.


• While much of Hunt’s plans have already been provided to the media, the devil is in the detail on things such as the Energy Plan and the knock-on implications for the BoE; however, the BoE at the November MPR accounted for some degree of support following the to-be-announced adjustment that is likely to occur from April. As such, it remains to be seen who outdated the BoE’s projections will be. Note, we are expecting commentary from BoE’s Chief Economist pill at 12:30GMT, who will provide snap-reaction to the statement and perhaps guidance on whether he is leaning towards a moderation of the 75bp pace seen in November to 50bp, or perhaps less as Tenreyro voted for, with market pricing currently leaning towards a 50bp move in December.


• In terms of potential reaction, ING makes the point that participants will need to account for the BoE’s QT action in assessing any downward-revision to the Gilt issuance remit.


• UK aside, EGBs and USTs are holding in similarly contained ranges around the unchanged mark; currently, +14 and -9 ticks respectively. For the EZ, final CPI and Spanish/French supply passed without marked reaction while the UST complex, and markets more broadly, will look to the numerous Fed speakers later in the session for further insight on the argument for 50bp vs 75bp at the December gathering, views that are perhaps caveated a touch by noting another inflation report is due before that policy meeting. Reminder, Waller (voter) said that recent data has made him more comfortable with the idea of a 50bps hike in December.

17 Nov 2022 - 10:17- Research Sheet- Source: Newsquawk