GBP Swaps: Pill fails to lift spirits; Flow dependent longs

Pill 11 Oct 2021
Dovish late words from the BOE's Pill failed to rally SONIA significantly after strong US data, but will surely be a hot topic on Friday?

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  • Pill fails to lift spirits; Flow dependent longs

  • New issues: L-Bank


    Pill fails to lift spirits; Flow dependent longs

    Perhaps surprisingly, what appear to be the most dovish comments yet from BOE Chief Economist Huw Pill failed to lift the GBP fixed income market in after-trading, following a session that saw a continuation of yesterday’s rally turn around on strong US PPI data.


    In the text of a speech Pill is to make at Warwick University this evening and released by the BOE at 5pm, Pill said that ““Continuing to raise rates at the pace and magnitude seen over the past year would eventually – and perhaps soon – imply that monetary policy had cumulatively been tightened too much.”


    This prompted maybe a tick or two of uplift in shorter dated SONIA futures, but even that is debatable, as the market remained in determinedly unexcitable mode following the below-forecast CPI data that allowed for double-digit gains in some shorter SONIA contracts yesterday.


    Following Pill’s speech publication this evening the very front end of the SONIA curve is unchanged, while moves elsewhere are about 1-3 ticks in the reds. Gilts were little-changed from their 4:15pm close, with the 10y yield +1bp at 3.50%, while 2s/10s was 1bp flatter and 10s/30s steepened 2bps.


    Of interest also were 5y gilts which outperformed with a 2bps drop in yield to 3.41%. In turn the 5y ASW rose 0.2bps to 41.3bps, while the 2y fell a not untypically lumpy 6bps to 41bps, sending it below the 5y ASW in stark contrast of the gaping distance between the two at peak front-end ASW levels of a few fleeting months ago.


    And in the long end 30y ASWs were +1bp at -54.3bps alongside underperformance by the long end of the gilt curve. With the front-end of the GBP fixed income curve now pricing in fewer than 20bps of MPC hikes then the recent steepening trend makes sense, as probably does the inability of SONIA to rally, though it will be interesting to see whether Pill’s words garner a belated response tomorrow morning.


    New issues:


    • L-Bank yesterday priced a £250m 3y FRN at SONIA +21bps. Leads were NatWest (B&D) and RBC.