Off Cheaps As Participants Discuss Split In What The BoE Should & Will Do

Gilts firm a touch after 2s failed to test their session (cycle) cheaps and weakness in 10s ran out of steam in line with this morning’s high in yields. Still, the space remains comfortably cheaper on the day, bear flattening.

• Longer dated benchmarks managed to move beyond CPI reaction cheaps, before retracing from extremes.
• That leaves Gilt futures -110 ticks, while cash Gilts sit 9-13bp cheaper across the curve, with both the 2-/10- & 5-/30-Year curves off inverted extremes of the day.
• Most of our discussions with clients point to a clear split in what people think the Bank of England should do and what it will do re: tomorrow’s meeting. A quick reminder that none of the sell-side reports that we have seen have shifted their baseline call to a resumption of 50bp hikes, although there are plenty of hawkish warnings/caveats in those notes.
• The BoE-dated OIS strip operates off of hawkish extremes, but is still firmer and steeper on the day, showing just under 35bp of tightening for tomorrow’s decision, while terminal rate pricing lies ~153bp above prevailing levels.