Goldman Sachs: Better UK Data But Negative Rates Looming Large

/STIR: Goldman Sachs note that "front-end UK rates continue to reprice
lower despite a strong beat in UK retail sales, with GBP 1y1y OIS now
trading around -12bp. In our stylized framework this represents around a
30% probability of a lasting implementation of negative rates in the UK.
As we head into the August MPC, at which we expect a qualitative
reduction in the BoE's lower bound estimate (to an implicit level of
-0.50%), we think the market could trade towards 40-50%, implying a
level of 1y1y around -20bp. Risk reward on this trade is shifting, and
further improvement in the UK recovery would likely see rates reprice. For
this reason, in sympathy with our negative view on duration risk and with
the observation that the 30y yield point is now the most volatile in the UK,
we continue to recommend 2s30s gilt curve steepeners."