TD Securities Senior European & UK Rates Strategist Pooja Kumra reports that GBP spreads are continuing to richen across the curve, particularly in the belly, with 5-year spreads increasing by nearly 10bps since the start of the year. Kumra notes that favorable fiscal and monetary policies are key drivers, and market expectations remain for one to two more rate cuts from the BoE.

GBP spreads show positive momentum

"As highlighted previously, the key drivers remain a rare sterling combination of favourable fiscal and monetary policy. Net issuance into the end of FY25/26 is supportive, and FY26/27 should see a further decrease in supply."

"Incoming data has taken a back seat but still keeps market expectations alive for one to two more rate cuts from the BoE, in contrast to other central banks where the bias is shifting more toward holding or even hiking."

"This dynamic supports cheapening of GBP spreads relative to USD spreads. This in particular holds as we enter some small range-trading levels in global rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)