Halister News

(Bloomberg) -- Near-term U.K. front-end rates may see buy-the-dip behavior with rate-hike pricing likely to be squeezed out of this year given the economy is still too fragile to sustain tighter financial conditions; downward revision of BOE’s optimistic GDP growth projections reflect recent soft data.

• Sonia MPC-dated forwards fully price the first 25bps hike now in Jan. 2019 vs August 2018 prior to the BOE decision, with Nov. 2017 now at 31% vs 47% prior to the announcement
• While Carney reiterated that market pricing of hikes may be insufficient, trying to maintain two-way risk in front-end, any hawkish pushback against Thursday’s rally may see buyers emerge on the dip given the growth downgrades, the softening of data and Brexit uncertainty
• Realized inflation prints from September into 4Q will confirm whether inflation is reaching its peak, and thereafter, is likely to fall sharply to below BOE’s 2% target in 1H 2018, given the absence of domestically generated inflation
  • There is room for the post-Brexit-vote rally in the inflation markets to fade further out the curve; see more here on inflation peak nearing given the faster pass-through from sterling’s post-Brexit fall
• The BOE re-investment of redemptions in week commencing Sept. 4 may be supportive for gilts and see a flatter curve driving an otherwise quiet summer market
• 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