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Government energy price announcements eyed

GILTS
  • After some weakness on the open, gilt futures are 6 ticks lower on the day, with 5-year + maturity gilt yields generally 0.3bp higher on the day.
  • There been a more substantial move higher in 2-year yields where yields are 0.8bp higher on the day (but around the open were 3.0bp higher on the day, so are still some way off their intraday highs).
  • The MPC meeting is of course the highlight of the week for the UK with final PMI prints on Tuesday and Thursday.
  • With little on the data calendar today, we look for any potential political announcements regarding energy prices. The Ofgem price cap is expected to be announced on Monday 7 February which is expected to see energy prices for consumer rise by about 50% in April. Until now, consumers have largely been protected from substantial increases in global (and particularly European) energy price increases. Media reports make it seem increasingly unlikely that the government will temporarily reduce VAT on energy bills (as had been previously mooted) and seem to be increasingly unlikely to provide any other subsidy to prices. However, there are expectations that less wealthy households could be protected from the rise in prices from more targeted measures. This will have much less impact on inflation - which is still expected to peak around April.
  • 2y yields up 0.8bp today at 0.971%, 5y yields up 0.3bp today at 1.070%, 10y yields up 0.3bp today at 1.245%, 30y yields up 0.3bp today at 1.371%
  • 2s10s down -0.5bp today at 27.4bp, 10s30s down -0.1bp today at 12.5bp
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