J.P.Morgan Recommend Paying BoE Sep OIS & SFIH4/H5 Flatteners

Late on Friday J.P.Morgan wrote “we still expect a 25bp hike at the September MPC meeting but our forecast for a further 25bp hike in November is now less clear as risks of a pause in November are clearly building.”

• “We doubt upcoming labour market and CPI data can surprise enough to the downside for the MPC to stay on hold at the September meeting.”
• “We recommend tactically paying Sep23 MPC OIS, although acknowledge potential upside is limited.”
• “The reds/greens SONIA curve has steepened 5bp over the past week reflecting the rally in 2Yx1Y SONIA. However, we note from a relative basis the reds/greens SONIA curve looks 8bp too steep on a regression basis vs. the level of 2Yx1Y SONIA. We have a tactical flattening bias on reds/greens given this RV dislocation.” They recommended entering a SFIH4/H5 flattener at -67bp as a result.
• They also flagged that they “see value in H4/H5 SONIA flatteners boxed against H4/H5 SOFR steepeners given the RV.”