Hike Across The Pond

Rates jump higher on BOE hike surprise, Fed commentary. Swap rates and Treasury yields rose across the curve today, fueled by the BOE’s higher-than-expected 50bp rate hike and hawkish Fed commentary. Chair Powell and Michele Bowman both suggested that additional hikes will be needed to calm stubborn inflation. The 2-year and 10-year UST yields rose 8bps on the session to 4.79% and 3.80%, respectively. The inversion between the two now sits at nearly -100bps, a multi-month high that illustrates broad market recession fears.

BOE surprises markets with 50bp hike. Today, the BOE’s 9-member Monetary Policy Committee voted 7-2 to raise their benchmark interest rate 50bps to 5%, the highest level in 15 years and the biggest move since February. This move surprised markets that were only expecting a 40% chance of a 50bp hike, with most expecting a 25bp move. Policy makers followed the hike by reinforcing earlier guidance pointing toward higher rates, with markets expecting rates to peak at ~6% early next year. BOE Governor Bailey said, “The economy is doing better than expected, but inflation is still too high, and we’ve got to deal with it…” The UK has struggled with inflation higher than major peer economies, with consumer prices rising 8.7% in May, driven by a combination of tight labor market conditions and higher energy costs.

Day ahead. PMI figures (9:45 AM) will headline the schedule. Fed non-voters James Bullard, Raphael Bostic, and Loretta Mester will make public comments.