Short Sterling – June 2010

Nicole Elliott from Mizuho Corporate Bank at 02/03/10

Comment: Despite the doom mongers the DMO reports that yesterday’s £3.75B 2012 Gilt auction was covered 3.12 times, the strongest demand in eight years with an average yield of 1.663%, as £200B worth of QE ends. Short Sterling calendar spreads continue to narrow (and have further to go) as red months edge closer to Libor, which remains stuck at 0.61% capping front month contracts. This front June contract looks set to inch another tiny step higher, closing in on front March at 99.390 contract high.

Strategy: Buy at 99.200/99.180; stop below 99.090. First target 99.270, then 99.340/99.390.