Short Sterling – March 2010

Nicole Elliott from Mizuho Corporate Bank at 10/14/09

Comment: Some are suggesting that Gilts are the latest asset ‘bubble’; we disagree and feel that a case can be made for these to yield about 20 basis points less than their German and US counterparts. Short Sterling calendar spreads should continue to narrow as hopes for economic recovery fade and/or are delayed, Dec09/Dec10 possibly dropping to 100 pips from over 200 in August. ‘Triangle’ consolidation over the last four weeks should cause a break higher imminently because the contract is no longer overbought. While above 99.000 we shall allow for a series of very cautious rallies towards 99.500. As futures prices creep higher they are likely to stumble time and time again.

Strategy: Attempt small longs at 99.160; stop below 98.980. Target 99.350/99.450.