HALISTER1: Hawkish Carney Keeps Rates Gamma Curve Flattening Bias Intact

Hawkish Carney Keeps Rates Gamma Curve Flattening Bias Intact

(Bloomberg) -- GBP rates gamma grid extends flattening bias as Governor Carney said the BOE has "limited" tolerance for faster inflation and “some removal of monetary stimulus is likely to become necessary", introducing two-way risk into the rates outlook.
  • See chart here of 3-month 2s10s implied vol curve, which has flattened to near pre-Brexit levels
  • Sonia MPC-dated forwards now pricing a 25bps rate increase in May 2018 vs August 2018 prior to the release; that is only move fully priced for next year
  • Chance of a one-and-done BOE rate move has increased with Carney noting any rate changes would be limited and gradual; consumers continue to face a real-income squeeze and tail risk of chaotic Brexit has increased
  • See analysis here from June 22: GBP rates gamma curve flattening may extend on mixed MPC signals
  • 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

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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