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2025-12-17 21:02:06
[Inflation Data Triggers Interest Rate Expectations, 2-Year GBP Swap Spread Widens Significantly] ⑴ Following the release of much weaker-than-expected UK inflation data, the 2-year GBP swap spread (relative to government bonds) widened significantly, indicating that swap rates outperformed comparable government bond rates. ⑵ Specifically, the 2-year SONIA (British Sterling Overnight Index Average) swap rate outperformed comparable government bond rates by 1.5 basis points. ⑶ However, the longer-term curve moved in the opposite direction: the 5-year swap spread narrowed by 1 basis point, the 10-year by 0.6 basis points, and the 30-year by 0.9 basis points. ⑷ This maturity divergence clearly reflects that the market believes the slowdown in inflation has primarily strengthened expectations of a near-term interest rate cut by the Bank of England, exerting the most direct and strong downward pressure on short-term interest rates. ⑸ Trading signals indicate that the market is rapidly repricing the short-term monetary policy path, but remains relatively cautious about the longer-term economic growth and inflation outlook.
