Gilt 2/10 Curve May Flatten to 88bps and Beyond, Charts Suggest
(Bloomberg) -- Gilt 2s10s curve could come under further bull-flattening pressure, with 88bps support now cropping up on radar, the year-to-date low, Bloomberg technical analyst Sejul Gokal writes.
- See live chart here; 2s10s now at 93bps
- 2s10s curve steepening has faltered right against 13-DMA resistance at 98bps, with overhead ichimoku cloud providing further headwinds this week
- MACD histogram is negative and far from Feb. and April extremes, suggesting flattening leg/momentum in its infancy
- Interim curve support at 91bps (May 18 low); deeper compression level seen at 88bps (low of French 1st round election day); larger objective at 76bps (61.8% Fibonacci of 2016 widening move)
- A steeping move above 100bps could challenge the flattening bias, with a move above 105 bps (at close) to firmly negate the outlook
- Weaker-than-expected U.K. 1Q growth data, lower oil prices and narrowing gap between the Conservative and Labour parties in latest election poll have collectively helped underpin long-end gilts this week
- GBP OIS forward markets show decreasing bets on a rate hike by mid-2018. The implied odds of a 25bps increase by June 2018 has slumped to 32% vs. 80% about two months ago (assuming 4bps Sonia-base rate corridor)
- NOTE: Sejul Gokal is a technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
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