Light Bull Steepening, Bailey Reiteration On Inflation Data Supports Short End

BoE Governor Bailey reaffirmed a familiar train of thought in his latest interview with the local press, pushing back on the idea of rate cuts in the foreseeable future. Elsewhere, he noted that recent inflation figures were “very good news.” Although the latter point was essentially a repeat, it seemingly provided some support for the short end early on.

• That leaves SONIA futures running flat to 5bp firmer, while BoE-dated OIS is 0.5-4bp softer through ’24 MPC contracts, both are a little off dovish session extremes.
• Gilts initially firmed in sympathy with the short end, with the front end of the curve leading the move.
• Benchmark gilt yields are flat to 2bp lower on the day, bull steepening.
• Gilt futures briefly closed Friday’s opening gap lower, topping out at 95.90, before easing to print +20 around 95.60 last.
• Bailey’s insistence re: no rate cuts in the foreseeable future, the realisation that the “very good” news comments were essentially a repeat and the presence of some corporate £IG supply have probably limited the richening move.
• The BoE will sell short maturity gilts today. Elsewhere, lower tier domestic data is due.