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EGB/Gilt - All the action is in the UK

BONDS
  • A busy session for UK markets, and Bund and EGB's took their cue from Gilts.
  • Bund and EGBs initially moved lower, but they have since consolidated some of the downside price action.
  • Peripheral spreads are all wider, besides Greece, which is 3.7bp tighter ECB kept rate unchanged and adjusted APP to E40bln/month in Q2, E30bln/month in Q3, E20bln per from from Q4 onwards
  • Most of the action has been in Gilts after the BoE hiked rates by 15bps to 0.25%.
  • Markets were pricing 7bps, so just under 50% chance pre announcement.
  • There was no presser.
  • UK 5s/30s is trading steeper, but still short of the resistance printed on the 10th December high at 34.062.
  • The main reason for the BOE hike: "There was some value in waiting for further information on the degree to which Omicron was likely to escape the protection of current vaccines and on the initial economic effects of this new wave.
  • There was, however, also a strong case for tightening monetary policy now, given the strength of current underlying inflationary pressures and in order to maintain price stability in the medium term.
  • The economic impact of the new variant could, in some scenarios, increase these inflationary pressures further."
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