Short sterling flattens when Bank Rate approaches 0.50%

Just a quick look at the reaction in Short Sterling post the BOE MPC announcement. Up until when the market is pricing in Bank Rate at 0.50% there has only been small movements in short sterling, but we have seen a flattening of the curve after Bank Rate gets to 0.50%. See the table below with the curve flattening from the M3 contract.

• Effectively that means that the market thinks rate hikes will slow down when gilt reinvestments stop.
• The 1.00% level to sell gilts is so far into the future that other than affecting knee jerk market moves, its not really going to have much impact today. If over the next few months the economy went from strength to strength and Covid-19 uncertainty was massively reduced and markets priced in a 1.00% Bank Rate in the next 4-5 years again, this could have a longer-lasting impact on gilts at that point, however.