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[MARKET ANALYSIS] Gilts and JGBs lead; pricing remains in favour of a BoE cut in April, but March has inched higher into Wednesday's CPI post-unemployment/wages

The latest UK unemployment and wage data has sparked a dovish sentiment in gilt pricing, reinforcing expectations for a BoE rate cut, with April now favored while March expectations have also edged higher.

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[MARKET ANALYSIS] Gilts and JGBs lead; pricing remains in favour of a BoE cut in April, but March has inched higher into Wednesday's CPI post-unemployment/wages

UK Labour Productivity QoQ (Q4) Q/Q -0.6% vs. Exp. -0.6% (Prev. 0.6%, Rev. From 0.7%)

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  • Gilts gapped higher by 38 ticks before climbing another two to a 92.32 peak, in reaction to the latest unemployment and wage data. If the move continues, resistance comes into view at 92.51, 92.56 and 92.95.
  • Upside spurred in a dovish reaction to a report that showed a further deterioration in the labour market, as the unemployment rate ticked up to 5.2% and is just a tenth shy of the BoE's 5.3% peak forecast (a view that was increased in the February MPR). Furthermore, wage data showed a moderation from the prior for both metrics and markedly so for the measure incl. bonuses. Sparking a dovish reaction in BoE pricing, however, the next cut remains priced for April, but March is now up to -21bps (-20.3bps pre-release) while the timing for a second 2026 cut has been brought forward to November from December.
  • As a reminder, we await the inflation series on Wednesday before a final call can be made on March vs April; note, Retail Sales and PMIs will also factor into the deliberations, but to a lesser extent.
  • JGBs firmer, with upside of just over 50 ticks at best, hitting a 132.60 peak. Upside was a function of the negative risk tone in Japan overnight, where conditions were very limited due to numerous APAC closures. Furthermore, participants continue to digest the policy implications of recent weak GDP data. Note, there was fleeting JGB pressure to a broadly in-line 5yr auction.
Context

This indicates a growing consensus around a more accommodative monetary policy, particularly as labor market conditions weaken and inflation data awaits analysis. Consequently, market participants should pay close attention to the upcoming CPI release for further insights into the potential timing of BoE actions.

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