HALISTER1: Curve Normalization If U.K. Stays in EU to Cheapen GBP Fly: SG

Curve Normalization If U.K. Stays in EU to Cheapen GBP Fly: SG

(Bloomberg) -- Betting websites and recent polls show risks of Brexit have diminished, but 4y1y/5y1y/6y1y fly remains close to recent lows, Societe Generale strategist Jason Simpson writes in a client note.
  • Pay 5Y forward of 1Y vs 4Y and 6Y forwards of 1Y; entry -0.2bp, target +6bp, stop -3bp
    • Paying the belly means negative carry of just under 1bp/year
    • Potential to return to levels seen in Feb. and in 2015
  • Likely to see yields around the 5Y part of the swaps curve back up and the front-end steepen as the market removes the pricing of risks of a BOE rate cut and returns to a more normal upward sloping curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Jason Simpson (Societe Generale SA)

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