MNI Gilt Week Ahead - May 10 2021: After a busy few days

• It has been a busy few days for the UK with the MPC meeting on Thursday announcing a tapering of gilt purchases (and the outgoing Chief Economist Haldane voting to reduce the target purchase size), local and devolved elections on Thursday and the upcoming announcement from Prime Minister Johnson that the next stage of lockdown will take place on Monday 17 May.
• There was limited market reaction to the MPC meeting, with the decision to taper merely a technicality given that it was needed in order for gilt purchases to continue until the end of the year unless the purchase target was altered. As we had noted in our BOE preview, we saw a 30% chance of an announcement at this meeting (we had looked for 50% in June and 20% in August).
• There are a number of appearances for Bailey scheduled this week, although none of the topics are directly related to monetary policy. The most interesting for the market is probably Governor Bailey's appearance on Tuesday on alternative reference rates to LIBOR with Bailey scheduled to make follow up comments at the ISDA AGM the following day. He is due to hold a Citizens' Panel Open Forum on Thursday. Also on Thursday Cunliffe is due to speak on digital currencies.
• Wednesday this week will see activity data for March and Q1 released (GDP, services, IP, construction, trade). These data are unlikely to be too market moving with England in lockdown for most of the period. Recall that schools reopened on 8 March and the first outdoor socialising and activities only restarted on 29 March. Data from April onwards when more of the economy opened up are likely to be much more important both to policymakers and the market.
• The reaction to the Scottish election result will likely be watched more closely, however, as it remains unclear. The SNP failed to win a majority of seats at Holyrood but the Greens also support independence and between them there is a majority of SMPs in favour of a second independence referendum. However, the popular vote was marginally in favour of parties that oppose independence. The legalities of the Scottish parliament holding a referendum without support from Westminster remain unclear and it is something the market will keep one eye on, although it will be unlikely to have much market moving impact in the short-term.
• Note that the DMO confirmed last week that the upcoming linker to be launched via syndication (scheduled for the week of 24 May) will have a maturity of 22 March 2039. Previously the guidance had been that the index-linked gilt would have a 15-25 year maturity.

See the link below for the full document including auction previews for the week ahead, QE tracker and BOE purchase analysis, cash flow matrix and issuance calendar:

GiltWeekAhead10052021.pdf