The market isn't beliving the BOE leak suggesting that gilt operations could be extended. Instead, gilts are being dumped at the moment and breaking the high yields before the emergency programs went into effect.
UK 10-year yields are up 18 bps to 4.61%.
UK 30s are also above 5% for the first time since Sept but haven't quite broken the Sept high.
The selling in gilts is spilling over to Treasuries and global fixed income.
This is from BMO fixed income strategist Ian Lyngen and highlights how trading unfolded yesterday. It offers a good playbook for today as well.
Tuesday’s price action was heavily reliant on the influence of the gilt market; selling off in sympathy with British yields overnight and stabilizing once London left for the day until governor Bailey’s hawkish remarks drove a partial reversal. The fact yields drifted lower once the selling impetus from the distortions in UK subsided reflect the underlying concern that while flows and positions can certainly press yields to (or through) extremes, it’s the longer term fundamentals of global growth and inflation expectations that will ultimately drive the outright level of 10s and 30s in the US.
This makes a lot of sense. There are willing buyers in US 10s close to 4% but expect heavy selling in London again today and keep a close eye on the results of the BOE's gilt-buying operations. Once London clocks off, look for yields to fall and the dollar to fall with it.
