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Technical analysis: Short Sterling

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Short Sterling – March 2009

Wed, Jan 14 2009, 09:35 GMT
by Nicole Elliott

Mizuho Corporate Bank


Comment: UK Gilts ten’s-two’s, from the steepest in two decades at 215, collapsed to 160 basis points and over time should slowly flatten further. Two-year and Index-Linked Gilts yield 1.60%, ten-year another 160 basis points over, and about the same as Bunds. Whisper it, but the question as to who will go bankrupt next remains, and while this is the case interbank lending will remain frozen. Three-month Libor at 2.27% today is 30 basis points down from this time last week after the Bank of England’s 50 basis point cut (and promise of more if needed). The next question is whether we cut to zero in order to get Libor closer to where they would like it which looks like 1.50%. Make no mistake, these are truly emergency interest rate levels, all futures contracts priced over the mean price of the last decade at 95.000.

Strategy: Possibly attempt tiny longs at 98.550/98.495; stop/reverse below 98.190 for 97.650. Cover ahead of 99.000.

Published on  Wed, Jan 14 2009, 09:37 GMT


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Mizuho Corporate Bank  | 1-3-3, Marunouchi, Chiyoda-ku, Tokyo 100-8210
http://www.mizuho-cb.co.uk | Nicole.Elliot@mhcb.co.uk

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