MNI Gilt Week Ahead - February 8, 2021

• Last week's MPC meeting saw the rates left on hold and the stock of QE unchanged with unanimous votes (see our BOE Review: Nothing Dovish Here). This was largely expected although two of the 22 analyst previews we had read were looking for a 10bp cut to 0% while a few other analysts expected one or two external MPC members to dissent. We wouldn't go so far as to say this was a hawkish meeting, but there was certainly nothing dovish here. Furthermore, it wasn't so much the MPC's views which drove much of the reaction, rather the PRA's guidance on when negative rates can be implemented without increasing financial stability risks. The Bank's growth forecasts were optimistic to say the least, assuming that the vaccination strategy will allow a fairly swift rebound in growth this year with an unprecedented rebound in demand, partly helped by releasing pent-up demand. The Bank announced a new review into the exit strategy. The MNI Markets team expects that the Bank will conclude at the very least that the first step of tightening will be to stop reinvesting proceeds from gilts that mature. This could potentially happen even before Bank Rate is increased at all. 10-year gilt yields hit their highest levels since March.
• The main story of the weekend newsflow was that early data suggests the AZ/Oxford vaccine only has limited effect against the South Africa Covid strain (which is being interpreted as it wouldn't stop transmission of the South Africa strain but would likely stop hospitalisation and death). However, a booster vaccine is expected to be ready for the Autumn with the plan that the booster will protect against the South African strain as well as any other strains which become widespread in the meantime. The UK still appears to be on track to give all "extremely vulnerable", front line healthcare workers and over-70s vaccinated by 15 February, all "vulnerable" and over-50s vaccinated by May with all adults to be offered a first shot by the autumn.
• This week will see Governor Bailey deliver his Mansion House speech on Wednesday (as well as testifying to the TSC on the FCA's regulation of LCF today). We will also receive the first estimate of Q4 GDP on Friday along with monthly data for December. We will also see the first launch of a linker via syndication since July 2018 this week (likely Tuesday).

GiltWeekAhead08022021.pdf