“The Bank of England have a credibility problem. The decision today was unequivocally dovish and yet short dated yields are higher and the curve is flatter. The market is basically telling the Bank that their current stance is wrong and in the coming months they will be forced into a more hawkish stance. In a world where even the ECB is hiking by 75bps at a time, it seems beyond incredible that the Bank is still dragging its feet with hikes of 50bps. The fact that the committee voting was so split is further evidence of just how unsure, uncertain and divided the MPC is. Interpreting what this means for the wider bond market is incredibly hard. High inflation, a not-so-hawkish central bank, plummeting sterling, a potentially huge fiscal boost and the imminent selling of gilts by the Bank should all mean higher yields and a steeper curve.

However, the market continues to price the tightening they expect, not that the BoE is forecasting, and this is naturally weighing on future growth expectations which is pushing long end yields lower. If the BoE would just grasp the nettle, there would be real value in the gilt market. Until they do, it’s very difficult to want to step in.”