BOE GOV. BAILEY: SOME OF UPWARD MARKET CURVE EXPLAINED BY RISK PREMIA NOT EXPECTED RATES; CURRENT RESTRICTIVENESS BROADLY APPROPRIATE.

Bank of England Governor Andrew Bailey stated that part of the upward slope in the UK government bond curve reflects risk premia rather than expected future policy rates, and that the current level of monetary restrictiveness is broadly appropriate. The distinction matters for traders because a term premium-driven curve implies that longer-dated yields carry compensation for duration and inflation uncertainty, not solely a path of higher policy rates, which lowers the pressure on the central bank to deliver further tightening to justify prevailing long-end pricing. This transmission runs primarily through the gilt market, where front-end sterling rates are most sensitive to expectations for Bank Rate, while long-dated gilts and the sterling swap curve reprice on term premium and fiscal supply considerations. Short-sterling and SONIA-linked futures remain the instruments most directly tied to the policy path, so a reading that policy is already sufficiently restrictive would tend to weigh on those contracts relative to longer tenors. The next catalyst for traders to watch is the UK CPI release, which will show whether services inflation is easing enough to validate the Governor's vi

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