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2Y Yields Drop Sharply Alongside 2023 BoE Hike Pricing

GILTS

The 2Y UK bond yield has fallen as much as 25.2bp today following commentary by key BoE officials that has left a 50bp or 75bp hike next week "on a knife edge".

  • That has cratered BoE pricing - while the September decision remains a close call, further out the strip we've seen more dramatic moves: June 2023 implied was 4.45% this morning, but It has dropped as far as 4.10%.
  • Today's 2Y yield drop is being compared to the 25bp drop by the close on June 24, 2016 (post Brexit referendum). Before that you'd have to go to Feb 2009 for a bigger drop (just under 30bp).
  • 2Y yields are now off 30bp from the post-2008 high set yesterday. To put this into perspective though, 2Y yields are still up 78bp vs a month ago, and traded with a 1-handle as recently as August 11th.
  • And put into the context of broader short-end volatility (August saw two 20+bp daily moves) , today's drop looks more of a retracement after a sharp move higher than a fundamental change of direction.

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