BoE In View, Markets Remain More Hawkishly Positioned Than Sell-Side

Gilts have cheapened a little after an initial show higher, although futures haven’t got anywhere near challenging the boundaries established in yesterday’s session as participants look ahead to the latest BoE decision. Futures last sit just off lows, while cash yields are 0.5-2.5bp higher, with some light bear flattening in play.

• All 40 surveyed by BBG look for a 25bp hike from the BoE at midday. The market remains more aggressive in the wake of the recent labour market and CPI data, showing ~34bp of tightening for the event, shy of yesterday’s hawkish extremes which briefly indicated an even chance of a 50bp hike. Terminal rate pricing sits a little above 6.00% in BoE policy rate terms, a touch firmer on the day.
• Bund futures grind lower, with some modest, intermittent influence from the SNB decision, which saw the Bank go with a 25bp hike, resulting in a brief and limited bid, and the more recent 50bp hike and hawkish guidance from the Norges Bank. The German cash curve twist flattens and Bund futures sit just off lows. Greek 10s tighten by ~4bp vs. Bunds, with weekend elections in Greece eyed. ECB speak and Eurozone consumer confidence pads out the remainder of the regional docket today, although greater market influence could be drawn from Gilts in the wake of the impending BoE decision.

• Bund futures are -0.26 today at 133.16 with 10y Bund yields up 1.5bp at 2.448% and Schatz yields up 1.4bp at 3.143%.
• Gilt futures are -0.25 today at 946.68 with 10y yields up 2.0bp at 4.421% and 2y yields up 2.2bp at 5.056%.