HALISTER1: Brexit Impact on Gilts Uncertain; See Steepening in 5s10s: RBS

Brexit Impact on Gilts Uncertain; See Steepening in 5s10s: RBS

(Bloomberg) -- There is some degree of ambiguity over potential gilt market impact from a U.K. vote to leave the EU, as well as if polls suggest a rising probability of this outcome, RBS strategist Simon Peck writes in a client note.
  • See risks of flight-to-quality demand for gilts, given perception of negative economic impact; offset by potential fall in demand from foreign investors, uncertain medium-term inflation outlook
  • Recent RBS investor poll shows split in views on gilts in the event of a rising probability of a “Leave” vote
    • Two-thirds see gilt-negative impact, while the rest see gilt-positive effect
  • See value in positioning for 5s10s steepening; front-end to be supported by expectations of easier policy, longer-end may see uncertainty premia
    • Entered 1Y fwd 2s10s steepener Jan. 29, target +85bps, offers roll down of 8.5bps/3-months
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Simon Peck (Royal Bank of Scotland Group PLC)

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