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Curves steepen on energy price plans (and market digest Mann's comments)

GILTS
  • Two themes this morning: first, how much will Truss commit to spending on energy price policies and what will that do to gilt supply, and second how will the BOE react - with focus split between the energy plan and yesterday's speech by Mann in which she sounded like she was leaning in favour of a 75bp hike.
  • These factors have led to a notable steepening of both 2s10s and 10s30s curves, up 6.4bp and 4.1bp respectively today.
  • 10y gilt yields have moved over 3bp higher this morning with an even bigger move for 30y yields - up over 7bp today. There have been a few different numbers surrounding the energy price cap estimates - Bloomberg ran a piece suggesting a plan potentially costing up to GBP130bln while Sky news has said it expects a plan of GBP60-70bln to cover both households and businesses. These costs are expected to be incurred over a roughly 18 month period and could increase gilt supply substantially (note that without any increase in the remit we are already expected the Oct-Dec quarter to see close to record net gilt sales when taking into account BOE QE/QT. See the recent MNI UK Issuance Deep Dive here.
  • Against this backdrop, expectations for next week's MPC meeting have dropped back somewhat (potentially on the expectation of less upward pressure on inflation expectations). 69bp is now priced for next week from a low of 64bp earlier this morning and a high of 72bp yesterday. This has driven 2-year gilt yields down over 3bp at writing. See more on Mann comments here. More important will probably be tomorrow's testimony ahead of the TSC from Bailey, Pill, Tenreyro and Mann - with the first of these two having not dissented and being more in line with the centre of the MPC.
  • Curves: 2s10s up 6.4bp today at -0.18.bp and 10s30s up 4.1bp today at 30.7bp.
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