Daily Flows & Insights – Hotter Inflation in Chilly Britain Triggers Sell-Offs

Daily Flows

  • Continued interest in BBB notes sparked by the GSB issue on Tuesday saw keen interest from investors chasing mutual bank paper in the 2-5 year space, with buyers able to secure client-to-client stock at very attractive margins.
  • Market participants took advantage of margins of +55 from foreign branch banks, with up to +65 available for 6 month NCDs.
  • The term deposit space remains a good opportunity to take advantage of specials as A2 names bid for longer-term deposits, with 18-24 months seeing interest in addition to 6 and 12 month deposits.

Hotter Inflation in Chilly Britain Triggers Sell-Offs

  • UK inflation came in hotter than expected in December at 0.4% MoM, up from November’s 0.2% monthly fall, with annual change of 5.1%. Both prints beat economists’ estimates and surprised the market, with sell-offs across the curve as 10 year Gilts jumped 19bps to 3.98%.
  • Across the Atlantic, US yields rose 5bps as bond traders continued to abandon aggressive bets of a March rate cut, with just a 50% chance of a cut priced in, down from 80% earlier in the week.
  • This was on the back of comments from Fed Governor Waller, who cautioned care and patience in beginning rate cuts with no immediate need to begin the process.
  • Despite plummeting consumer confidence in Westpac’s latest survey, Australian markets are now projecting a first rate cut in September with stronger likelihood of a November cut despite pricing in an August hike just two days ago.
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Curve Team
Josiah Binet