SONIA Futures Firm To Start The Week, Familiar Tones Seen From BoE's Bailey

SONIA futures sit flat to 5bp firmer through the blues. Bund futures sit a little above levels witnessed during Friday’s SONIA settlement window.

• BoE-dated OIS sits flat to 3bp softer through the contracts covering ’24 MPC meetings, after consolidating the bulk of the recent hawkish repricing at the tail end of last week.
• That leaves terminal policy rate pricing ~6.5bp above prevailing SONIA levels. Beyond there, 55bp of cuts are priced through ’24 on the whole, with the first 25bp cut discounted through the end of the Sep ’24 MPC decision (that compares to over 85bp of cuts being priced for ’24 and markets toying with the idea of a May rate cut less than 2 weeks ago).
• Pre-market, Citi note that they "are neutral at these levels but look to pay Feb/May and Feb/Jun BoE OIS spreads on any dips back to the -20 and -25, respectively."
• Early Monday comments from BoE Governor Bailey provided familiar soundbites i.e. it’s too early to think about rate cuts and underscoring the difficulty in the BoE’s fight to get inflation down to 2%. He also reminded us that policy is seen as "restrictive" at present. They won’t have been a needle mover for markets, but did underscore the higher for longer mantra that the BoE currently holds (which has factored into the hawkish repricing away from recent dovish extremes).
• Elsewhere, PM Sunak pushed back against the idea that his economic plan will ultimately provide a fresh round of austerity. He also highlighted the prioritisation of tax cuts in the interview with BBG. BBG sources noted that Sunak “is planning to decide on further tax cuts and the date of the next UK general election around February.”
• Lower tier UK data headlines the domestic economic docket today.