GILTS
Gilts hold almost all of the initial post-BoE rally after the minutes of the meeting revealed that the decision to hold rates steady was “finely balanced” for some BoE members.
- Furthermore, a BBC journalist has suggested that “the BoE decision was “finely balanced” for 3 holds, probably including Governor, which mean it was a close run thing not to cut - Those 3 members playing down sticky services inflation - August cut very much on.”
- While this cannot be verified in the post-decision communique, it will be factoring into the dovish market reaction.
- BoE-dated OIS moves to price ~49bp of cuts through year end vs. ~43bp heading into the decision, with ~90% odds of a cut through the Sep MPC now priced vs. 70% odds pre-decision.
- Pricing covering the August MPC decision now shows 50/50 odds of a cut.
- SONIA futures rally to fresh session highs, last 3.0-7.5 firmer on the day.
- Gilt futures had already corrected from lows ahead of the decision. Next resistance in that contract is seen at 99.05.
- March lows in 2-Year yields are ~5bp below current levels, with prior June lows breached in that contract.
- Broader gilt yields are 2-6bp lower on the day, with the curve bull steepening.
- 2s10s is still below ’24 highs.
- On the FX side, GBP/USD shed around 25 pips on the dovish repricing in rates, putting the pair at new daily lows of 1.2680 before recovering, with nearby support at 1.2657 untroubled for now.
- GBP/NOK printed new multi-week lows, with key support at 13.3228, compounding the initial move that followed the hawkish Norges Bank.
| BoE Meeting | SONIA BoE-Dated OIS (%) | Difference Vs. Current Effective SONIA Rate (bp) |
| Aug-24 | 5.071 | -12.9 |
| Sep-24 | 4.977 | -22.3 |
| Nov-24 | 4.826 | -37.4 |
| Dec-24 | 4.712 | -48.8 |
Source: MNI - Market News/Bloomberg
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