Short Sterling – March 2010

Nicole Elliott from Mizuho Corporate Bank at 10/12/09

Comment: Ten-year Gilts are leading the way to lower yields, and with Index-Linked ones yielding between 40 and 70 basis points two-year paper at 75 looks rather poor value. Therefore we feel the yield curve should flatten significantly medium term, and then stay flat for ages. Short Sterling calendar spreads should narrow too as hopes for economic recovery fade and/or are delayed, meaning red months offer better buying opportunities. Record volume on the 29th September’s sell-off is a reminder of instability at the top of a long term ‘broadening’ formation. Nevertheless 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, making trading these nerve-wracking.

Strategy: Possibly attempt small longs at 99.180/99.140; stop below 98.900. Target 99.350/99.450.