/STIR: Dovish BoE Outcome Likely Poses Biggest Risk To Markets

Double top technical formations have been seen across many benchmark gilt yields, along with double bottoms in SIFZ4, SFIZ5 and gilt futures.

• Some will argue that the short-term dovish move has now run its course, with ’necklines’ reached or surpassed in many of those technical formations.
• ~55bp of BoE cuts are priced through year end, with the first 25bp cut essentially fully discounted come the end of the August MPC.
• 2-Year gilt yields are over 20bp off early May highs, probing 4.30% over the past couple of days.
• While positioning in SONIA markets is likely geared short, the retrace from cycle extremes has made positioning a little cleaner ahead of tomorrow’s BoE decision.
• Meanwhile, our latest Pi suggests that structural positioning in gilt futures appears flat, with last week’s trade indicative of short cover.
• Comments from BoE Deputy Governor Ramsden played into the dovish repricing (see our policy team’s latest insight piece for more on Ramsden’s knack for anticipating moves by a majority on the MPC).
• U.S. STIR repricing has also factored into the move.
• Netting off the above, the dovish risk to markets has moderated a little given the recent moves and apparent positioning adjustments in STIRs.
• Still, a dovish BoE outcome probably presents the more meaningful risk to current market pricing, although there is some space for hawkish adjustment if the outcome warrants (very similar to the pre-NFP set up in U.S. STIRs).
• Our full preview of the BoE decision can be found here.