FI MARKETS ANALYSIS: STIR Curve In White Segment Steepens; Reds Flatten Amid L-T Weak Global Growth Concerns

Short Sterling Weekly Update It has been a busy week for the UK with the release of bank stress tests and the Bank of England's Brexit scenarios, along with the global spillover effects from US Fed Governor Powell's dovish speech. • The white segment of the curve has sold off and steepened somewhat over the past week, as expectations of a near-term rate hike have increased. Part of this is due to the market expecting more rate hikes in a smooth Brexit (as the BoE's Inf Report forecasts were conditioned on the mean of these Brexit scenarios). • However, the curve flattened in the reds and longer maturity contracts, as longer-term weaker global growth concerns have picked up. Indeed, the Z9-Z3 spread has flattened 7 basis points this week. • Short Sterling vol sellers are returning: for example, Weds saw sales of Sep19 99.375/99.625 call spreads in 10k and Sep19 98.75/99.00 strangles in 3.1k. • Next week the PMIs will be the key data release in the UK, but markets will continue to remain fixated on Brexit, with the leaders' TV debate scheduled for Dec 9 and the parliamentary vote scheduled for Dec 11.

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