GBP Rates Gamma Curve Flattening May Extend on Mixed MPC Signals
(Bloomberg) -- GBP rates gamma grid may continue to extend flattening bias as the growing divide among MPC increases the sensitivity of front-end rates to incoming data and headlines, Bloomberg strategist Tanvir Sandhu writes.
- See chart here of 3-month 2s10s implied vol curve, which has flattened to near pre-Brexit levels
- While the chance of a one- and-done BOE rate increase has increased this year, consumers continue to face a real-income squeeze and tail risk of chaotic Brexit has increased
- A rate hike in this environment of weaker activity data and declining wage growth would lead the market to price in a policy error via flatter curves and lower inflation breakeven rates, given it is likely to have more negative than usual growth effects; see more here
- Long-standing dove Haldane turned hawkish yesterday in contrast to Carney’s dovishness on Tuesday, saying that monetary policy tightening is needed “well ahead of current market expectations” and that it would be prudent to remove some of the stimulus moving into the second half of the year
- NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
To contact the reporter on this story: Tanvir Sandhu in London at tsandhu17@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma
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