GBP Swaps: Gilts dance to the beta as Death speaks

Bounce spacehopper 9 Mar 2023
After a big sell off in 10y gilt yields there was a strong bounce on US data today. Elsewhere, MPC veterans Saunders and Sentance offer diverse views.

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  • Gilts dance to the beta; Death speaks

  • New issues: IADB, OSB


    Gilts dance to the beta; Death speaks

    After a double-digit sell off in 10y gilt yields (for example) yesterday on the strong CPI data, there was a decent recovery by GBP fixed income today. Perhaps word had spread that former MPC Member (and current VP of the Society of Business Economists) Andrew ‘Death’ Sentance said in a Radio 4 interview yesterday afternoon that inflation will persist longer than expected, and the MPC may well hike to 6% next year.


    Even if the market wasn’t responding to the input of one of its most trusted reverse indicators, the rally today was heartening, and accompanied by generally calm strategy notes from banks predicting little, or only moderate, changes in MPC rate peaks due to the recent persistence of inflation.


    Looking at the move without allowing himself to become too euphoric, one senior gilt trader at a leading GEMM said this afternoon that refreshingly weak US data, especially the Philly Fed survey and existing home sales, set the path for the 8bps rally by 10y gilts this afternoon that formed the bulk of the bounce.  


    “The market conceded a lot (of yesterday’s bearishness) on US data today, and while all markets rallied afterwards the UK is the highest beta out there, so it rallied the most.”


    By the close of play today, while Bund yields were down by 6bps and 10y USTs by 5bps, the 10y gilt yield had dropped 8bps to 3.77% while 2s/10s had bull-steepened by 1bp to 4bps and 10s/30s had also bull-steepened 1bp to 34bps. In ASWs, 2y was +1.8bps at 19.6bps, 5y and 10y were unchanged and 30y was +0.3bps at 57.9bps.


    SONIA futures were unchanged in the front-end but had clawed back up to 11 ticks of yesterday’s sell-off in the reds and greens as they started to row back from some of the price action yesterday that saw the BOE hiking path as peaking at 5% in September.


    In inflation today, the moves were muted, with RPI swaps +2bps in the 1y at 4.18%, while 30y was +2bps at 3.37% with other curve points either + or +2bps on the day. Real yields rallied by 8-10bps across the curve. 


    Just for balance, another former MPC member, Michael Saunders, today also popped up on Radio 4 and predicted that the MPC will hike 25bps next month and then will “probably” be done, as second round effects of rising energy prices start to fade. .


    New issues: IADB, OSB

    • The IADB this afternoon priced a 5y, £300m Sustainable bond at gilts +49bps via BofA (B&D), HSBC and RBC.


    • Chatham-based mortgage and retail lender OSB Group PLC today priced a £250m, 10.25y NC5.25 10% Tier II sub bond at gilts +630bps via Goldman, Lloyds (B&D) and NatWest.