GILTS: Off Highs, BoE Due

Policy signal from Norges Bank Governor Wolden Bache is consistent with the September monetary policy decision: "The job of tackling high inflation has not been fully completed. From our current standpoint, we do not envisage a large decline in the policy rate ahead."

No material impact on NOK markets as a result.

The rest of the speech focuses on climate change.

• "the transition and climate change can affect consumer prices. A larger share of renewable energy in electricity production may lead to more variable electricity prices, while more frequent extreme weather events may give rise to higher volatility in other prices, particularly for food. "
• "While the need for both higher investment to cut emissions and a larger supply of renewable energy will increase demand, lower petroleum investment will have a gradual dampening effect."
• "Both the phasing out of fossil-based productive capital and climate-related damage can dampen potential output. Moreover, potential output is determined by productivity growth, which depends on whether climate-related investment generates more economic productivity than other investment."
• "Climate change may lead to more frequent individual climate events that push up prices. If the central bank chooses to look through each individual event, average inflation over time could exceed the target. If firms and households begin to expect this and assume higher inflation when setting prices and wages, inflation may become entrenched. This may make it more costly to bring inflation down to target".
• "How climate change and the transition will affect the normal interest rate is uncertain."

• Fed Funds implied rates are broadly 1bp higher on the day, with the mild increase coming in London hours rather than in response to typically hawkish comments from Schmid late yesterday (policy in right place, only sightly restrictive).
• Cumulative cuts from 4.08% effective: 22bp Oct, 43bp Dec, 53.5bp Jan, 64bp Mar, 70bp Apr and 83.5bp Jun.
• SOFR futures mild losses are led by the M6 (-0.01) and otherwise little changed at -0.005.  
• The SOFR implied terminal yield at 3.085% (~100bp of cuts from current levels) is seen in the Z6 and H7 contracts, having ticked into the Z6 yesterday for the first time since mid-July.
• It remains off recent highs of 3.11/3.12% seen in late September (looking at closes).