UK: Technically (at least until revisions) we have a recession. Instead of +0.1% as expected, Q1 was off 0.2%. What does this mean; what is a 0.2% or so among friends? Nothing, other than perhaps to George Osborne.
For opportunity, look to the UK curve. We have been at the sidelines past weeks. Spreads have come in. Some may have caught that move (ex., 2-30, 300, Mar/16, last 289).
From present levels, course-of-least resistance is wider for this and related spreads. Clients are to look for a chance to own (L-S) the UK term structure, not sell it. This is because observers will continue to be caught up in the malaise theme and miss surprising strength ahead. Not real strength naturally, just something through estimates. This represents reality ahead for this credit.
Caution: Today’s Apr CBI print showed expected sales for May up sharply, the highest since Feb/11. These results and other recent surveys seem to support our case (and contradict ONS results). Careful with consumer or business survey results however, even if they do support your case. We never use them for making strategy, here, the US or elsewhere. Only the work of our friend, the late, great Albert Sindlinger was reliable, and he is no longer with us.
Our insight is based only on what we understand to be the flaw to economists’ models, this credit, especially with work directed at the consumer. Simple as that. And now that the Bk of Eng has more reason to fire, all the more case for a steeper curve.
Thus, look for a window to own this spread, near or at present levels.
Robert Craven
For opportunity, look to the UK curve. We have been at the sidelines past weeks. Spreads have come in. Some may have caught that move (ex., 2-30, 300, Mar/16, last 289).
From present levels, course-of-least resistance is wider for this and related spreads. Clients are to look for a chance to own (L-S) the UK term structure, not sell it. This is because observers will continue to be caught up in the malaise theme and miss surprising strength ahead. Not real strength naturally, just something through estimates. This represents reality ahead for this credit.
Caution: Today’s Apr CBI print showed expected sales for May up sharply, the highest since Feb/11. These results and other recent surveys seem to support our case (and contradict ONS results). Careful with consumer or business survey results however, even if they do support your case. We never use them for making strategy, here, the US or elsewhere. Only the work of our friend, the late, great Albert Sindlinger was reliable, and he is no longer with us.
Our insight is based only on what we understand to be the flaw to economists’ models, this credit, especially with work directed at the consumer. Simple as that. And now that the Bk of Eng has more reason to fire, all the more case for a steeper curve.
Thus, look for a window to own this spread, near or at present levels.
Robert Craven
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