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Curves bull steepen on tax U-turn

GILTS
  • The gilt curve has bull steepened this morning as markets digest the news that the Chancellor has U-turned on the plan to cut the "additional" rate of tax from 45% to 40% for those earning above GBP150,000.
  • The move is largely symbolic and the fiscal cost is negligible relative to some of the other tax cuts announced during the Chancellor's "Growth Plan".
  • However, this has seen a repricing of the SONIA curve with markets removing around 25bp of expected hikes in 2022 (with around 220bp now priced by the December meeting).
  • The terminal rate has also fallen by around 25bp to sit around 5.65% - around 90bp lower than the peak seen last week.
  • 2y yields down -15.5bp today at 4.044%, 5y yields down -10.2bp at 4.275%, 10y yields down -9.1bp at 3.994% and 30y yields down -5.8bp at 3.759%.
  • 2s10s up 6.4bp today at -5.0.bp and 10s30s up 3.3bp at -23.8bp.
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