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Short Sterling – March 2010

Nicole Elliott from Mizuho Corporate Bank at 11/18/09


Comment: Two’s/ten’s Gilt spread flattened as expected, with rates oneach leg moving in opposite directions. There should be more to come led by long dated yields dropping as investors realise that ultra-low interest rates are likely to persist for a very long time. Front-month money market futures should therefore rally towards official targets, helped by the forward element dropping out of the forward forward. This March 2009 contract, having set a new record high, is consolidating in a small ‘triangle’, poised to move on up again. Beware of potential year-end jitters though.

Strategy: Possibly attempt small longs at 99.230; stop below 99.080. Target 99.350 and then 99.450/99.520.

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