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The 2-Year gilt/OAT spread trades relatively near the ’24 closing low (99.1bp), last ~105bp.
- This comes at an interesting juncture given the political uncertainty France faces and the lack of clarity when it comes to the Labour Party’s ultimate policy goals in the UK.
- Meanwhile, BoE pricing trades towards the dovish end of the multi-week range, showing ~15bp of cuts for the August MPC and just under 50bp of cuts through year end.
- The impending appearance from BoE chief economist Pill could be key for the spread.
- We have noted that Pill is generally seen as the most hawkish internal MPC member. If he strikes a more dovish tone it would likely be interpreted as a dovish shift for all of the internal members and increase the probability of an August cut.
- The 2-Year Gilt/OAT spread would move closer to the 100bp and ’24 low in that instance.
- Meanwhile, some hawkish pushback from Pill would result in some knee-jerk widening.
- Note that benchmark rolls skewed the spread wider in January.
Fig. 1: Gilt/OAT 2-Year Yield Spread
Source: MNI - Market News/Bloomberg
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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