Gilt 2/10 Curve May Flatten to 200-DMA at 93bps, Technicals Show
(Bloomberg) -- Gilt 2s10s curve could come under further bear-flattening pressure with long-term average line at 93bps cropping up on the radar as markets continue to recalibrate expectations for U.K. monetary policy, Bloomberg technical analyst Sejul Gokal writes.
- See chart here; 2s10s now at about 104bps
- 2s10s curve steepening has faltered right against 100-DMA resistance at 116bps, as a more hawkish tone from BOE, coupled with this week’s upside surprise in CPI and retail sales data, has led to a shift in market expectations toward tighter policy and consequently a flatter curve
- Recalibration of rate expectations has led to a sharp underperformance in front-end of curve with 2-year yield rising as much as 12bps since low of March 16
- Interim curve support at 99bps (38.2% Fibonacci of August- December steepening phase, Feb. 24 low); deeper compression levels seen at 90bps (channel base, which drops 0.5bps a day), 82bps (Oct. 24 low) and 76bps (61.8% Fibonacci)
- A steeping move above 118bps could, however, challenge the flattening technical bias
- GBP OIS forward markets show increasing bets on a rate hike by mid-2018. The implied odds of a 25bps increase by June 2018 have climbed to 77% (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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