Short Sterling – March 2010

Nicole Elliott from Mizuho Corporate Bank at 11/25/09

Comment: The Treasury yield curve continues to flatten, and Short Sterling calendar spreads narrow, as the more enlightened question potential economic recovery and the true state of the banks. The March10/March11 spread should collapse towards 80/100 basis points. Rising open interest in this contract over the last week, when prices stumbled at a new record high of 99.370, suggests understandable hedging in case of year-end jitters. Expect another week of this before futures contracts stabilise and resume their upward creep. Red months have more potential.

Strategy: Attempt small longs at 99.230; stop below 99.080. Target 99.360 and then 99.450/99.520.