HALISTER1: Morgan Stanley Says Buy 5Y Gilts Outright Ahead of Brexit Vote

Morgan Stanley Says Buy 5Y Gilts Outright Ahead of Brexit Vote

(Bloomberg) -- The pricing of U.K. rates increasingly only makes sense if the referendum causes the MPC to cut rates, suggesting the front end looks vulnerable if the U.K. votes to remain in the EU this month, Morgan Stanley analysts led by Matthew Hornbach write in client note on Friday.
  • Recommend buying 5Y UKT outright into Brexit; recommends buying Jan. 2021 gilt
    • No longer suggest owning gilts vs Treasuries
  • Key risk to the recommendation is a global rates sell-off, possibly on more hawkish than expected rhetoric from the Fed or BOJ, or because Brexit concerns subside
  • NOTE: Brexit risk priced by GBP/USD vol is extreme compared to any other market, BofAML said last week
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Source: BFW (Bloomberg First Word)

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Matthew Hornbach (Morgan Stanley)

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