BOE in focus after Fed meeting

Core fixed income is higher on the day, with USTs, Bunds and gilts all higher than their pre-FOMC levels but with flatter curves. After moving lower early in the European session, we have recovered some losses, particularly after gilts opened.

• The focus today will be on the BOE where we and the market look for a 25bp hike. SONIA futures are a little lower following the Fed through Whites and early Reds, but are higher through later Reds, Greens and Blues. There is a real disconnect between market pricing and what economists aresaying at present regarding the BOE. Markets are now looking for about a 25% probability of a hike today with 6.8 25bp hikes priced in for the remainder of 2022. The economist consensus looks for 3 hikes (including today). We think it's a 7-2 vote that would be close to neutral for a market reaction. Of course this has the caveat of what happens to the forward guidance and whether the "coming months" time contingency remains. But given the split between economists and markets, it's much more uncertain this time than normal exactly what the market is pricing for today's meeting. For our full BOE preview click here.
• TY1 futures are up 0-13 today at 124-20+ with 10y UST yields down -6.4bp at 2.124% and 2y yields down -1.4bp at 1.927%.
• Bund futures are up 0.15 today at 161.22 with 10y Bund yields down -1.3bp at 0.376% and Schatz yields up 1.5bp at -0.327%.
• Gilt futures are up 0.42 today at 121.55 with 10y yields down -3.7bp at 1.591% and 2y yields down -0.9bp at 1.391%.