Daily Flows & Insights – Bank of England Surprises Markets with 50 Basis Points Hike

Daily Flows

  • With 5 year Swap rate recently reaching 4.62%, 5 year term deposit rates continue to attract flow as market participants lock yields upwards of 5.45% for a portion of their portfolio.
  • As the market begins to price in the end of the rate hike cycle and  5 year Swap rate already dropping to 4.32%, longer term opportunities will be limited.
  • Outright NCD levels for 3 months are sitting just below 4.80% and may break through this level as 1-2 more interest rate hikes could shift the shorter end of the curve upwards.

Bank of England Surprises Market with 50 Basis Points

  • The Bank of England  met yesterday and raised interest rates by 50 basis points to 5.00%.
  • This surprised markets, with a 25 basis point hike expected.
  • The BoE cited persistent inflation pressures, tight labour market conditions, wage growth and services inflation as key factors resulting in the hawkish decision.
  • This decision increased forecasting for a possible recession as those vulnerable to tightening conditions via mortgage rate rises will struggle.
  • In response to this UK short end of the curve rose and a terminal rate of 6.085% priced in.
  • Whilst UK inflation is considerably more untamed compared to Australia, this decision reflects the global sentiment taken by Central banks, their main goal is to avoid persistent inflation and they are willing to break the economy to do so.
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Curve Team
Jack Pedersen