BOE: Pill: Can't give "even a directional view" on impact US-UK trade agreement
Pill asked if the vote outcome would have been different if had known the US-UK trade deal at the time of the vote / forecasts.
A: Don't think "we could make any very specific comments about how the forecast would have evolved, because we haven't been able to process or analyse this... I think the impact of these different measures needs to be quite carefully thought through, because it's not just any sort of specific impact on one sector or one good having a lower tariff that that changes things dramatically. What's important from the monetary policy point of view is the overall impact on the economy as a whole. And we do need to be cognizant of the fact that there are potential channels by which the UK benefits from having somewhat preferential trade arrangements through this new agreement with the US. But there are also channels by which to the extent that that puts other jurisdictions at a disadvantage, and we trade with those jurisdictions, they can have sort of further knock on effects. So I think that's why unravelling at that sort of specific micro level, measure by measure, may lead to potentially misleading views about the overall macro economic impact and the impact on the outlook for inflation at that two to three year horizon that we care about. So that's why I'd be quite cautious about giving even a directional view, a strong directional view at this point."
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US TSYS: Early SOFR/Treasury Option Roundup: Evaluating Latest Tariff Volley
SOFR & Treasury option flow centered around upside calls overnight, modest volumes so far as desks evaluate China's latest response to US raising levy to 104% yesterday with 84% tariff on US imports this morning. Underlying futures under pressure (10Y yield at 4.4367% at the moment), curves steeper but off overnight highs (2s10s currently +7.319 at 63.432 vs. 73.847 high). Projected rate cuts through mid-2025 have consolidated slightly vs. late Tuesday's levels - still pricing in a full point by year end, however. Current levels vs. late Tuesday (*) as follows: May'25 at -13.4bp (-14bp), Jun'25 at -37.9bp (-38.2bp), Jul'25 at -61.4bp (-61.6bp), Sep'25 -78.4bp (-79.3bp).
- SOFR Options:
- Block, 3,000 SFRU5 97.50/98.50 2x3 call spds, 10.5 ref 96.50
- 2,000 SFRH6 94.62/95.62 put spds ref 96.825
- 2,000 SFRM5 95.75/95.93/96.18/96.38 call condors ref 96.12
- over 8,100 SFRJ5 96.00 calls, 18.0 last ref 96.115
- 4,500 SFRU5 96.50/97.00 call spds ref 96.435
- 2,000 0QK5/2QK5 97.25 call spds
- 2,000 SFRM5 96.75/97.50 call spds vs. 2QM5 97.50/98.25 call spds
- 2,000 SFRM5 95.75/95.81/95.88 put trees ref 96.085
- Block/screen, 13,000 SFRM5 96.50/97.25 call spds ref 96.125
- Block, 5,000 SFRK5 95.81/95.93/96.00/96.06 broken call condors, 5.0 ref 96.155
- Block, 4,000 SFRM5 95.62 puts, 1.0 ref 96.18
- Treasury Options:
- 3,500 FVM5 110.5/111 call spds ref 108-07
- 2,000 FVK5 106.25/106.5/107/107.25 put condors ref 108-04.25
- 2,000 wk3 TY 110.75/112 strangles ref 110-22 (exp 4/17)
- over 4,600 TYM5 112 calls, 60 ref 110-24
- over 10,300 USK5 113 puts, 143 last
- over 11,000 USK5 116 calls, 131 last
- 5,200 USK5 117/120 call spds, 25 ref 114-12 to -11
- over 6,000 TYM5 112.5 calls, 50 last ref 110-30.5 to -31
- 1,000 TYK5 112.5/113.5/114.5/116.5 broken call condors ref 110-27
- 1,300 FVM5 107/107.5 put spds, 13 ref 108-08
- 2,500 TYK5 112/113 call spds ref 110-26
GILT PAOF RESULTS: GBP22.75mln of the 4.375% Mar-30 Gilt sold.
- GBP1.125bln have been on offer.
- This leaves GBP18.335bln of the gilt in issue.
US DATA: Mortgage Applications See A Likely Short-Lived Boost
In amongst various tariff announcements seen over the past week, US mortgage holders took the opportunity to refinance at modestly lower rates in the week to Apr 4. That’s unlikely to last though with 10Y swap rates currently 30bp higher than where they ended last week (or 16bp higher than last week’s average).
- MBA composite applications increased 20% over the week (sa) to end three weeks of chipping away at a prior cumulative 34% jump seen in late Feb/early Mar when rates first pulled lower.
- New purchase applications increased 9.2% whilst refis jumped 35%.
- The 30Y conforming rate fell 9bps to 6.61% for its lowest since Oct 2024, continuing a decline from a recent high of 7.09% in Jan.
- It, for now, saw new purchase applications at the highest since Jan 2024 (67% of 2019 average) whilst refis are at their highest since Oct 2024 (55% of 2019 average).
- 10Y swap rates are currently 30bp higher than where they ended last week (or 16bp higher than last week’s average) and mortgage rate spreads to swap rates have widened by about 30bps over the past month.
