October 03, 2024 05:40 GMT
BOE: Scope for 10-15bp more cuts to be priced into SONIA in early trading
BOE
Bank of EnglandCentral Bank NewsCEEMEABulletUKGlobalFixed Income BulletsForeign Exchange BulletsRegionMarkets
- Looking at yesterday's SONIA close, markets were already almost fully pricing a 25bp cut in November, but there were only 36bp of cumulative cuts by December and 101bp by May 2025.
- We have previously argued in the BOE review that the word "gradual" introduced in the September MPC meeting merely ruled out 50bp cuts, rather than ruling out sequential cuts.
- Following Bailey's interview, and hints that the BOE could be a "bit more aggressive" and a "bit more activitst", we still don't think there is any need for the BOE to cut 50bp at any point in the cycle, but there may be some scope for a very small probability to be added to November now. At least 25bp looks almost certain to us, so there are now balance of risks towards 50bp rather than towards no cut in our view.
- The more probable move, however, is that markets move towards pricing back in sequential cuts, so there is scope for at least a 10-15bp move in Dec24-dated MPC SONIA, and scope for the May 2025 contract to see a similar move. Note that the May 2025 contract was pricing in 15bp more cuts than it is today as recently as last week.
| BoE Dated SONIA OIS | ||
| Current Effective Rate | 4.95 | |
| Meeting Date | SONIA BoE-Dated OIS (%) | Difference Vs. Current Effective SONIA Rate (bp) |
| Nov-24 | 4.716 | -23.4 |
| Dec-24 | 4.591 | -35.9 |
| Feb-25 | 4.358 | -59.2 |
| Mar-25 | 4.164 | -78.6 |
| May-25 | 3.939 | -101.1 |
| Jun-25 | 3.813 | -113.7 |
| Aug-25 | 3.668 | -128.2 |
| Sep-25 | 3.602 | -134.8 |
| Nov-25 | 3.514 | -143.6 |
| Source: MNI/Bloomberg | ||
218 words