HALISTER1: Short Sterling Curve Too Flat vs Euribor; Box Spread Trade: SG

Short Sterling Curve Too Flat vs Euribor; Box Spread Trade: SG

(Bloomberg) -- Enter steepener on Sept. 2018-Sept. 2020 short-sterling spread vs equivalent Euribor flattener with risk of inflation overshooting in medium term greater in the U.K., Societe Generale strategist Jamal Meliani writes in client note.
  • Buy L U18-L U20 vs selling ERU18-ERU20; entry 2bp, target 20bp, stop -6bp
  • Do not believe the ECB will be in a position to hike rates for several years, with the euro-area unemployment rate unlikely to have fallen enough by 2018-2019 to push 5y5y inflation expectations durably higher
  • In contrast, if the U.K. government delivers fiscal loosening and economic data continues to surprise on the upside, this may help restore some risk premium to the long end of the short sterling curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Jamal Meliani (Societe Generale SA)

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