[MARKET ANALYSIS] Gilts lead on pre-budget reports and post-Pill, USTs await CPI

USTs are firmer, but only modestly so, in a bit of a holding pattern ahead of US CPI this afternoon, which will be scoured for insight into near-term Fed bets. A cool print could add to the dovish move seen after the September NFP report, and thus further push back on end-2026 tightening bets. Conversely, a hot series would likely see that NFP-driven move unwind. As it stands, that sees USTs three ticks firmer in 104-22 to 104-29+ confines, while yields are lower across the curve with the short-end leading the downside currently. EGBs are in fitting, with no real reaction to the energy developments thus far. Instead, the bloc is focused on the fiscal front, as France’s Le Pen speaks later and is expected to once again push back on the level of French contribution to the EU budget. Elsewhere, confrontation is expected between Spanish PM Sanchez and Italian PM Meloni, according to Politico, on the migration situation. Bunds similarly bid by about 10 ticks, in narrow confines. More generally, the OAT-Bund 10yr yield spread is holding at 137bps and is modestly narrower on the session vs a c. 140bps start. While the BTP-Bund equivalent is around 108bps, and slightly wider as it stands. Finally, Gilts see relative outperformance today, supported by the FT report that Chancellor Healey’s fiscal giveaways will be funded via taxation and/or spending cuts, rather than via more borrowing. Additionally, BoE Chief Economist Pill pushed back on the extent of market pricing for hikes by end-2027; however, his commentary was more pragmatic on the data-dependent and uncertainty points, rather than a complete dovish reassessment from the known hawk. Firmer by 50 ticks at best, hitting an 84.37 peak, but around 10 ticks shy of Tuesday's best as things stand.