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TD Securities Recommend 5s30s Gilt Flatteners

GILTS

TD Securities note that a “policy pause from the BoE has been met with a rather very cold reaction from the markets. To some extent the result was also driven by the increase in 12m pace of QT from £80bn to £100bn with 50% spilt between reinvestments/sales like previous year. We do not consider this as a surprise for markets given that the BoE had already highlighted this ahead of the meeting. To us, the move is primarily driven by ongoing positioning adjustments.”

  • “The Fed/ECB/BoE are all in the restrictive policy mode. But the steepening move in 5s30s Gilts definitely outpaces the move in U.S./EUR.”
  • “Supply and demand dynamics in long-end are much more balanced.”
  • “Furthermore, the incoming skew of quarterly issuance is likely to centred around short/mediums rather than longs per se. Front-end will also remain vulnerable to the sticky wage inflation dynamics in UK.”
  • They recommended entering 5s30s flatteners targeting a move to 0, with a stop set at 40bp.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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