Short Sterling – June 2010

Nicole Elliott from Mizuho Corporate Bank at 01/27/10

Comment: UK three-year Swaps are almost at February 2009’s record low of 2.221%, levels unimaginable at the 1990 peak of 14.550%. Over the last week the Treasury yield curve and calendar spreads in Short Sterling futures have flattened and narrowed, admittedly from historically extreme highs; this should continue and gather pace (March10/March11 down to 80) as hopes for a decent economic recovery this year are queried. Another week with new contract highs on good volume and the cash market unchanged (3-month Libor 0.61%). This should continue with perhaps Dec11 having the best upside potential.

Strategy: Buy at 99.230, adding to 99.180; stop well below 99.090. First target 99.270, then 99.340/99.390.