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The Governor of the BoE, Andrew Bailey's comments over the weekend that central banks must act if inflation expectations rise, and that energy prices are likely to push inflation expectations higher has been the driving point for markets this morning.

  • The short sterling curve is aggressively lower, with Bailey seen as one of three swing voters and his support is seen as pivotal to a rate hike in 2021. The Sep22 contract has seen the biggest move, down 20 ticks at the time of writing. The Euribor and Eurodollar curves have been dragged up to 10.5 ticks and 7.0 ticks lower on the day respectively. However, the moves in those strips have been more focused around the late Reds/early Greens.
  • Gilts have led the selloff, too with 2-year gilt yields 14.1bp higher on the day, with the curve flattening with 10-year yields up 6.0bp (against 4.0bp for 10-year Bunds and 3.8bp for 10-year USTs).
  • As markets focus on the withdrawal of global monetary policy support, EGB peripheral spreads have widened, led by BTP-Bund spreads with the 10-year spread 3.1bp wider on the day.
  • The calendar is fairly light today, so Bailey's comments will continue to be digested.
  • TY1 futures are down -0-12 today at 130-19 with 10y UST yields up 3.6bp at 1.608% and 2y yields up 3.2bp at 0.428%.
  • Bund futures are down -0.72 today at 168.84 with 10y Bund yields up 3.7bp at -0.132% and Schatz yields up 3.8bp at -0.666%.
  • Gilt futures are down -0.66 today at 124.00 with 10y yields up 5.7bp at 1.160% and 2y yields up 13.9bp at 0.714%.