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GILTS: We See Slightly More Aggressive QT Then Consensus, Swap Tightening Risk

GILTS
CEEMEABulletUKGlobalFixed Income BulletsRegionMarkets

Our macro team looks for a step up in the headline pace of QT at tomorrow’s BoE decision.

  • Our base case looks for a GBP110bln pace of sales between October ’24 & September ’25, slightly more aggressive than the consensus view of GBP100bln.
  • The team’s baseline would allow the pace of active sales to be roughly halved from the current GBP50bln.
  • Such an outcome would present tightening risks to swap spreads further out the curve.
  • Conversely, an in line with consensus outcome would likely promote some knee-jerk widening of swap spreads, as the potential for an uptick in QT is probably partially priced at this stage (looking at recent outright and relative curve moves in swap spreads).
  • Further out, those with a spread tightening bias may look to add positions heading into the Budget, given the risk of an increase to the gilt issuance remit.
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Our macro team looks for a step up in the headline pace of QT at tomorrow’s BoE decision.

  • Our base case looks for a GBP110bln pace of sales between October ’24 & September ’25, slightly more aggressive than the consensus view of GBP100bln.
  • The team’s baseline would allow the pace of active sales to be roughly halved from the current GBP50bln.
  • Such an outcome would present tightening risks to swap spreads further out the curve.
  • Conversely, an in line with consensus outcome would likely promote some knee-jerk widening of swap spreads, as the potential for an uptick in QT is probably partially priced at this stage (looking at recent outright and relative curve moves in swap spreads).
  • Further out, those with a spread tightening bias may look to add positions heading into the Budget, given the risk of an increase to the gilt issuance remit.