J.P.Morgan Recommend Paid Near-Term BoE OIS Position

Late on Friday J.P.Morgan noted that “our base case remains for the BoE to hike 25bp at the June meeting but visibility on the contours of the delivery in terms of the vote split and changes to the current forward guidance language is limited.”

• “Delivering a 50bp hike (in June) has communication challenges given the BoE has already stepped down the pace to 25bp. However, from a pure data dependency standpoint and given the market has further repriced terminal rate expectations we think a 50bp hike is now a real possibility.”
• “Market pricing will be sensitive to the CPI print the day before the BoE, however, we could envisage a scenario where the BoE hikes 50bp and uses the minutes and forward guidance to clearly indicate this is not the first in a sequence of 50bp moves. Alternatively, the BoE could deliver a hawkish 25bp hike and change the guidance language around its response to persistent inflation and put a 50bp hike for August on the table.”
• “We recommend tactically paying Jun ‘23 MPC OIS (or Aug ‘23 MPC OIS), although we would keep exposure light.”