Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – UK CPI Breaks 9%, ECB to Hike

Thursday, 21st June, 2022

Daily Flows

  • Flows were targeted at the long and short end of the curve with reference rates dictating investor mentality.
  • Longer dated reference rates have sold off significantly over the past week, providing investors with generous returns. Major bank 1Yr TD’s were just shy of 4.00% and have the potential to breach this today.
  • On the shorter end, 3 month NCDs broke 2.60% and major banks TDs also reached this level.
  • Investors saw relative value in bonds yesterday, picking up attractive yields in government bonds and longer dated major bank FRNs.

UK CPI Prints a 9 Handle

  • Last night saw the release of CPI data for the United Kingdom.
  • Headline CPI beat expectations by 0.10%, printing 9.40% YoY. This is the highest inflation print since the 1980s.
  • Core inflation hit expectations, and saw a slight decrease from the month before, falling from 5.90% to 5.80%.
  • Energy prices are still the largest driver of the inflation print, which have continued to soar throughout Europe and the UK on the back of the Ukraine crisis.
  • In a more positive light, Putin has agreed to supply some natural gas through Nord Stream 1. Whilst the flow is minimal (expected around 20% of prior supply), this will add some aid to Europe.
  • However, this comes at a moral cost, with the EU placing sanctions on Russia amidst the war.

ECB To Meet Today

  • The ECB meet tonight and are expected to raise rates by 25 basis points.
  • The announcement will be closely watched and will be the first rate hike since 2011 and the first change to the cash rate since 2019.
  • Interest rate parity is putting huge pressure on the Euro, which has fallen drastically and trading par to the USD.
  • Raising the rate will alleviate some of this pressure on the Euro.

Nicholas Allan

Senior Associate