HALISTER1: U.K. Rates Sell-Off ‘Overdone’, Buy 10Y Gilts at 1.15%, Says UBS

U.K. Rates Sell-Off ‘Overdone’, Buy 10Y Gilts at 1.15%, Says UBS

(Bloomberg) -- Market reaction to comments from PM May, falling GBP, concerns about reaction function of overseas investors are overdone, UBS strategists including John Wraith write in a note.
  • Recommend buying 10y gilts at 1.15% (target 0.80%) or receiving 2y2y GBP rates at 80bps (target 0.40%)
  • Weakness in gilts should fade after Carney provided gentle reminder not to interfere with central bank independence following May’s comments on monetary policy
  • While CPI is likely to accelerate in coming months, it is entirely due to the weakness of GBP and therefore externally driven; will likely abate rapidly once temporary factors and base effects play out
  • Concerns about overseas demand in gilts may be warranted, though if historical evidence is any guide, demand will likely return strongly once the currency stabilizes
  • 10-year gilt yield little changed today at 1.115%
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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John Wraith (UBS Asset Management Japan Ltd)

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