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2-year gilt yield surpasses April 2011 high

GILTS
  • There has been a decent flattening in the gilt curve today, with 10-year yields just 2.2bp higher on the day but 2-year yields climbing 7.3bps (up 11.7bps from the intraday low of 1.3636%).
  • This has put UK 2-year gilt yields at their highest level since February 2011 (surpassing the April 2011 high of 1.4608%).
  • The moves have occurred due to a combination of improved sentiment surrounding Ukraine following Russian Foreign Minister Lavrov's comments on the possibility of future talks (see here and here) and Fed's Bullard doubling down on last Thursday's hawkish post-CPI comments (see here and here).
  • Indeed, looking at near-term market pricing in the UK, there is now 43bp priced in for the March meeting, 80bp by May, 131bp by August and 150bp by November (on top of the 40bp already delivered by the BOE).
  • This increasingly looks like there is too much priced in for the UK, and the market will be very vulnerable to either a soft labour market data print tomorrow or a soft inflation print on Wednesday.
  • 2y yields up 7.3bp today at 1.480%
  • 5y yields up 4.4bp today at 1.477%
  • 10y yields up 2.2bp today at 1.565%-
  • 30y yields up 0.9bp today at 1.624%
  • 2s10s down -5.0bp today at -0.6.bp
  • 10s30s down -1.3bp today at -0.9.bp
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