MNI China Daily Summary: Monday, December 9

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GILTS: Goldman: Stay Short 10s Vs 2s And 30s

GILTS
CEEMEABulletUKGlobalFixed Income BulletsRegionMarkets

Goldman note that “UK duration had another week of underperformance against peers.”

  • They suggest that “the upcoming Autumn Statement and interest in the magnitude of increased capital spending resulting from a potential change in debt rule is a key focus for Gilts.”
  • They go on to suggest that “by our estimates, term premium repricing has been the driver of the recent sell-off,” while also highlighting “the front-end outperformed its usual beta to the U.S. last week, as the ongoing dovish pivot in BoE communication strengthened conviction in a sequential cutting baseline.”
  • “This underlines, in our view, the constructive outlook for gilts once the budget is cleared, and risk-premia can eventually fade.”
  • Looking ahead, they continue to “expect the long- and front-end to outperform the belly, where any upside surprises to issuance is likely to be felt”. As a result, they continue to recommend long 2y and 30y gilts vs 10y on a butterfly.
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Goldman note that “UK duration had another week of underperformance against peers.”

  • They suggest that “the upcoming Autumn Statement and interest in the magnitude of increased capital spending resulting from a potential change in debt rule is a key focus for Gilts.”
  • They go on to suggest that “by our estimates, term premium repricing has been the driver of the recent sell-off,” while also highlighting “the front-end outperformed its usual beta to the U.S. last week, as the ongoing dovish pivot in BoE communication strengthened conviction in a sequential cutting baseline.”
  • “This underlines, in our view, the constructive outlook for gilts once the budget is cleared, and risk-premia can eventually fade.”
  • Looking ahead, they continue to “expect the long- and front-end to outperform the belly, where any upside surprises to issuance is likely to be felt”. As a result, they continue to recommend long 2y and 30y gilts vs 10y on a butterfly.