UK Rates Trade Idea Receive GBP 1Y1Y OIS

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UK Rates Trade Idea Receive GBP 1Y1Y OIS

Fixed Income ● Rates

8 June 2026

Awaiting a signal from the BoE

As we approach next week’s BoE meeting, 10-year gilt yields sit just below 5% while there

are c.60bp of hikes priced in for the next year or so. The first of these is fully-priced for the

September meeting, with a c.50% chance that it is delivered alongside the Monetary Policy

Report in late July. Next week’s raft of labour market and inflation data may prove decisive

in determining the vote split and tone of the upcoming MPC minutes among BoE members.

It promises to be quite an important week: not only might it help signal whether a rate hike will

be delivered next month, but the Makerfield by-election will also take place on 18 June. If

Labour candidate Andy Burnham is successful, he is expected to mount a leadership challenge

soon afterwards (The Times, 6 June 2026). While gilt investors have been encouraged by his

recent commitment to the current fiscal rules, that position could be tested and/or borrowing

may still rise if a boost to infrastructure spending is explored. In either case, market sensitivity

to political headlines may intensify which could weigh on longer tenors.

Receive GBP 1Y1Y

However, in our view, the case to add longs in shorter maturities has become more compelling.

In addition to their sensitivity to oil prices, UK rates have also felt the bearish push of recent

moves in the US Treasury market. With 60bp of hikes priced in for the next year or so, we think

the short-end should begin to find stronger support as risk-reward has shifted favourably. Unlike

in the US, the growth backdrop in the UK is weak. The release of the latest Decision Maker

Panel survey epitomised that last week. It showed a decline in forward-looking inflation and