MNI Gilt Week Ahead: Spring Statement Week

• There was a significant repricing of UK fixed income markets last week after the MPC raised rates by 25bp but softened its forward guidance. We have been noting for some time that there was too much priced into the UK curve and despite last week’s moves we still think that the market is pricing too much by placing too little emphasis on the prospects of a slower economy with consumer discretionary spending likely to be hit as energy prices and NICs increase in April. Markets now price in 119bp for the remainder of the year (6 meetings remaining). At the end of the prior week markets had been pricing 126bp when adjusted for the 25bp hike already seen. This had been around 23bp higher immediately prior to the MPC meeting.
• Looking ahead we have two key events in the UK this week. First, we receive CPI data on Wednesday morning. The past four releases have all seen upside surprises. Consensus looks for a rise from 5.5%Y/Y to 6.0% with core rising from 4.4%Y/Y to 5.0%. Given the focus on inflation this data will again be closely watched.
• Second, we have the Chancellor’s Spring Statement on Wednesday (start time is normally around 12:30GMT). He is likely to announce some limited fiscal stimulus targeted to help with what the press has dubbed the “cost of living crisis” as well as possibly some increases in military spending and levelling up. The DMO will release the gilt remit and proposed calendar for the new fiscal year on Wednesday, too. We are still compiling our preview (it will be out tomorrow morning) but from nine GEMM estimates so far we have seen a range of estimates for gilt sales from GBP124.5bln (Citi) to GBP200.3bln (BNP) with the median at GBP155bln. There is also an expectation that the target of T-bill stocks will be increased from somewhere between GBP5-30bln. Note that the DMO has now completed gilt issuance for the current fiscal year.
• See the full document for QE tracker and BOE purchase analysis, cash flow matrix and issuance calendar.

GiltWeekAhead21032022.pdf