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Technical analysis: Short Sterling

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Short Sterling – September 2009

Wed, Jun 3 2009, 09:03 GMT
by Nicole Elliott

Mizuho Corporate Bank


Comment: The UK yield curve is steeper than it’s been in at least twenty years, benchmark short-dated Gilts ‘firmly anchored’ around the 1.00% mark while fives and tens swing violently, thirty’s and fifty’s a bit better behaved. This is expected to be a feature of interest rate structures in the US and Eurozone too, as well as Japan, for a very long time yet. Three-month Libor remains stuck at 1.26%, two-week money considerably lower at 0.61%, so no wonder futures contracts are marching sideways; allow for more of the same this week. We feel the front December has a little more room for manoeuvre so that the Z9/Z0 spread should widen to 160/175 basis points.

Strategy: Possibly attempt tiny longs at 98.900, adding to 98.840; stop below 98.700. Cover longs around 99.000 even though a brief squeeze to a new record high is possible.


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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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