Halister News

(Bloomberg) -- July coupon-paying gilts will go ex-dividend at close of business today, and are skewed to the long-end, boosting the Over-15y index with extensions to take effect tomorrow, RBC strategists including Vatsala Datta write in client note.

• Coupons are worth GBP3.87b, with ~GBP3.17b being returned to investors once BOE holdings are considered; majority of these coupon payments (~GBP2b) are skewed to the 15y+ sector
• Actual coupon payments will be made on 24th July, and as the bonds go ex-dividend seven business days before the payments, associated index extensions will take effect tomorrow
  • Estimate these coupon payments will extend FTSE All Stocks Index by 0.04y and the FTSE Over 15y Index by 0.11yr at close of business today
• On July 24, the UKT 0.5% 2022 gilt will roll sub-5y, which extends the Over-5y FTSE Index by 0.35y, while the UKT 1.25% 2018 gilt will drop below 1y, extending the Over-1y Index by 0.3y
• Given these coupon flows, lack of net supply until the end of August, and recent surge in bond yields which should encourage further de- risking activity in a bid to lock-in long-term rates, this points to outperformance of the long end
  • Prefer to express this view by entering a beta-adjusted 10s30s gilt curve flattener (1x DV01 1.5% 2047 vs. 0.85x DV01 UKT 1.5% 2026), target 80bps on the spread vs current level of 88.5bps

To contact the reporter on this story: Stephen Spratt in London at sspratt3@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma