Truss-Era Levels Seen Ahead Of CPI, PMI Details Deemed “Nothing But Hawkish”

Weakness across the Gilt curve remains the standout story in core global FI markets today, with BoE terminal rate pricing back to levels not seen since the time of former PM Truss, showing around the 5.10% mark as of typing. Outright Gilt yields and Gilt futures are also back to levels not seen since the backend of Truss’ short-term, with a fairly parallel 7.5-8.5bp of cheapening witnessed across the curve.

• BoE Governor Bailey failed to really move the needle during the early rounds of commentary in front of the Treasury Select Committee, pointing to good reasons for inflation to fall, although he reiterated that further tightening will be required if inflation persists.
• Meanwhile, the headlines readings in the UK PMIs weren’t particularly hawkish, but the text of the release noted that “strong wage inflation meant that service providers experienced the fastest rise in their cost burdens for three months.” The surveyor collator also noted that “it's the far larger service sector that will typically dictate policy, meaning these survey results are nothing but hawkish in suggesting the Bank of England has more work to do to quash stubbornly high inflationary pressures in the services economy.”
• This leaves a much more hawkish market framing in play ahead of tomorrow’s key CPI release, where the BBG survey median looks for a stepdown in the headline reading to 8.2% Y/Y vs. the 10.1% seen in March, alongside 6.2% Y/Y in the core metric, which would be in line with March’s reading.