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STIR: Bailey Changes The Tone In GBP/EUR RV plays

STIR
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Plenty of cross-market interest from those looking for expedited BoE rate cuts in the wake of BoE Governor Bailey’s dovish interview.

  • GBP/EUR 1y1y narrowers are one vehicle to express such a view.
  • That spread closed at a ’24 high of 181.5bp yesterday and has already eased by 9.5bp to 172bp.
  • The BoE’s reluctance to firmly commit to further rate cuts had previously seen SONIA markets widen vs. European peers, while also feeding into gilt widening vs. Bunds.
  • Bailey’s comments have altered that picture.
  • Pre-existing positioning biased towards GBP wideners may also factor into short-term adjustments in cross-market plays.

Fig. 1: GBP/EUR 1y1y Spread

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Plenty of cross-market interest from those looking for expedited BoE rate cuts in the wake of BoE Governor Bailey’s dovish interview.

  • GBP/EUR 1y1y narrowers are one vehicle to express such a view.
  • That spread closed at a ’24 high of 181.5bp yesterday and has already eased by 9.5bp to 172bp.
  • The BoE’s reluctance to firmly commit to further rate cuts had previously seen SONIA markets widen vs. European peers, while also feeding into gilt widening vs. Bunds.
  • Bailey’s comments have altered that picture.
  • Pre-existing positioning biased towards GBP wideners may also factor into short-term adjustments in cross-market plays.

Fig. 1: GBP/EUR 1y1y Spread

Keep reading...Show less