United Kingdom: Still tactically long 10Y gilts

Research evidence excerpt

United Kingdom: Still tactically long 10Y gilts

Francis Diamond AC (44-20) 7134-1504 Global Markets Strategy J P M O R G A Nfrancis.diamond@jpmorgan.com

J.P. Morgan Securities plc 17 July 2026

Marcus Mayfield (44-20) 3493-8050

marcus.mayfield@jpmorgan.com

J.P. Morgan Securities plc

Figure 3: MPC OIS prices cumulative 29bp of hikes by November and 55bp Figure 4: Jun27 MPC OIS has sold off 25bp since the start of July but has

of cumulative hikes by next June lagged Jun27 ECB OIS in the recent sell-off

MPC OIS steps and cumulative tightening priced (RHS); bp Level of Jun27 MPC OIS and Jun27 ECB OIS; bp

15 70 460 290

Step Cumulative market MPC OIS (LHS)

60 ECB OIS (RHS)

10 50 280 440

5 270

0 260

-5 0 250

380 240

Apr 26 May 26 Jun 26 Jul 26

Source: J.P. Morgan, Bloomberg Financial Source: J.P.Morgan

1Yx1Y SONIA has sold off around 13bp over the week and is close to the 4.30% level. The

recent sell-off reflects the rally in energy prices and we note that the rolling beta of 1Yx1Y

SONIA vs. oil prices has risen recently but remains well below the levels seen earlier in the

conflict (Figure 5Therolingbetaof1Yx1YSONIAvs.oilpriceshasrisenrecentlybutremainswelbelowthelevelssenearlierintheconflict). We continue to expect 1Yx1Y SONIA to trade in a 4.00-4.30% range.

We take profit on our paid belly of the 1Y/1Yx1Y/2Yx1Y SONIA fly (50:50) with

1Yx1Y SONIA yields at the top end of our expected range and the fact that this trade behaved

as a low beta bearish proxy. However, given the very attractive carry in paying the belly of

this fly we would look to re-enter if 1Yx1Y SONIA rallies closer to the bottom end of our

expected trading range.

10Y gilt yields are 5bp higher on the week, having reached close to 5.00% level on Tuesday

before rallying back to around 4.93%.