Halister News

(Bloomberg) -- Recommend buying gilts on a cross-market basis after recent widening, given upcoming positive cash-flow environment, while Brexit-related uncertainties may weigh on economic prospects in the medium term, RBC strategists including Vatsala Datta write in a client note.

• Gilts underperformed on cross-market again on Friday, a phenomenon that has been in place since the start of the year
  • This has been particularly stark in the 30yr sector, where gilts have reversed all their relative strength seen through December
• Underperformance is partly due to the pick-up in supply pressure in the U.K. this month, which includes 5 auctions
• This supply comes amid a fairly supportive cash inflow backdrop with BOE’s QE program to restart Monday and upcoming redemptions, month-end flows
  • UKT 1.75% 01/2017 conventional gilt will redeem later this month for ~GBP17b cash, excluding BOE holdings, this should lead to an extension of 0.23y in the FTSE All Stocks Index on Jan. 23, according to RBC
  • 13 conventional gilts paying coupon this month (worth £2bn to private investors) will go ex-div on the close of business Jan. 12