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STIR: New Cycle Highs For UK Terminal Rate Expectations

STIR
BulletMarketsFixed Income Bullets
  • SONIA futures again underperform SOFR and EURIBOR counterparts today, in relative moves that aren’t justified by data (mild upward revision for final October services PMI) but rather appear to be sustained pressure since last week’s Budget.
  • Implied yields are as much as 12.5bp higher for 2H26 contracts, with new cycle highs for terminal rate expectations that closes in on 4% for a 21bp increase since the day before last Wednesday’s Budget.
  • Outright moves are likely helped by the SOFR curve steepening on the back of a strong ISM services report, with yields 8.5bps higher. ISM Services surprised with its highest since Aug 2022 and importantly with the employment sub-component firming to its strongest since Aug 2023 after a heavily distorted October payrolls report.
  • The BoE is widely expected to cut 25bp on Thursday but with added attention on the extent of support for the move after the run up in terminal rate expectations in recent weeks. The MNI BoE preview will be published later today.
  • UK terminal rates continue to remain the exception compared to the US and Eurozone, where both remain comfortably below implied terminals seen early in the summer despite strong recent climbs for the US in particular. 
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  • SONIA futures again underperform SOFR and EURIBOR counterparts today, in relative moves that aren’t justified by data (mild upward revision for final October services PMI) but rather appear to be sustained pressure since last week’s Budget.
  • Implied yields are as much as 12.5bp higher for 2H26 contracts, with new cycle highs for terminal rate expectations that closes in on 4% for a 21bp increase since the day before last Wednesday’s Budget.
  • Outright moves are likely helped by the SOFR curve steepening on the back of a strong ISM services report, with yields 8.5bps higher. ISM Services surprised with its highest since Aug 2022 and importantly with the employment sub-component firming to its strongest since Aug 2023 after a heavily distorted October payrolls report.
  • The BoE is widely expected to cut 25bp on Thursday but with added attention on the extent of support for the move after the run up in terminal rate expectations in recent weeks. The MNI BoE preview will be published later today.
  • UK terminal rates continue to remain the exception compared to the US and Eurozone, where both remain comfortably below implied terminals seen early in the summer despite strong recent climbs for the US in particular.