Price pressures continue to be a problem in the United Kingdom.
Although headline inflation began to adjust lower, core inflation is picking up again, putting the Bank of England on a much more aggressive trajectory.
However, how much more aggressive the Bank of England can be? According to Bloomberg, markets are betting for the BOE base rate to peak at 6.15% on February 2024, two months after the ECB and Fed benchmark rates peaked.
Such expectations might provide a window of opportunities for those traders that do not believe the BOE will go that high or for those that think it will go even higher.
How to express your rate hike/cut expectations with bond futures?
Bond futures can be useful instruments to express your interest rate hike or cut expectations. In the case of the UK, you’d need to look at the SONIA rate, which reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and other institutional investors.
You can find SONIA future contracts in the Saxo platform by using our screener and selecting "Contract Futures," and filtering by the keyword "SONIA." The screener will return you a list of SONIA future contracts with expiry from today until two years and a half later.