– Daily Flows & Commentary BY THE CURVE TEAM –

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

Thursday, 21st June, 2022

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.

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.

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.

Senior Associate