Light Dovish Reaction On Net To BoE

The front end of the Gilt curve sees some light outperformance in the wake of the BoE’s 25bp hike as any pricing surrounding the potential for a larger hike is removed post-event. That leaves the major cash benchmarks running 7.5bp richer to 5bp cheaper on the session, as twist steepening remains in play and the post-decision bid eases from extremes. Gilt futures edge higher before quickly returning to pre-BoE levels, -50 or so.

• The BoE’s delivery of the widely expected 25bp rate hike allows the pricing of odds of a larger step to come out of the very front end of the BoE-dated OIS strip, although a 25bp follow up hike for the September meeting is still virtually fully priced. Swings in pricing further out the strip are a little more contained, leaving the strip steeper on the day, with terminal policy rate pricing now below 5.80%.
• GBP under minor pressure in FX trade following the BoE decision - GBP/USD already lower headed into the decision but manages to touch fresh pullback low of 1.2621, before recovering to 1.2640.
• All in all, a muted initial reaction with no meaningful surprises provided by the Bank.