We noted on June/12 that the course-of-least-resistance for the UK curve over the intermediate term would be one of expansion, and that under no circumstances were clients to look to sell this spread (S – L) as a strategy.
We had expected that UK real-sector weakness had been priced in, including a stagnant service sector, and that the better part of contagion to the E-Z was priced in also, short of another panic.
Thus, we recommended clients look to own the curve given when for example (2-30) approached 270, then 277. The panic of June/26, 27 did the trick (270). Last, 276.
Many may of course consider 2–30 simply a directional play. It is not but that is fine. Then work something else along the curve, or of course any of the other strategies based on expansion of the term structure, that is, with this dynamic as their foundation.
The approach is to gradually gather a position; the first accumulation should have been June/26, 27.
We personally hope for a complete and sudden failure of the Euro. But of course that is not likely over the intermediate term. Only if we knew that it were, would we want clients to stay away.
Bank of England firing ahead will not hurt, nor will the emergency lending scheme, nor will the Bank’s recently announce plans for liquidity relief.
Robert Craven
We had expected that UK real-sector weakness had been priced in, including a stagnant service sector, and that the better part of contagion to the E-Z was priced in also, short of another panic.
Thus, we recommended clients look to own the curve given when for example (2-30) approached 270, then 277. The panic of June/26, 27 did the trick (270). Last, 276.
Many may of course consider 2–30 simply a directional play. It is not but that is fine. Then work something else along the curve, or of course any of the other strategies based on expansion of the term structure, that is, with this dynamic as their foundation.
The approach is to gradually gather a position; the first accumulation should have been June/26, 27.
We personally hope for a complete and sudden failure of the Euro. But of course that is not likely over the intermediate term. Only if we knew that it were, would we want clients to stay away.
Bank of England firing ahead will not hurt, nor will the emergency lending scheme, nor will the Bank’s recently announce plans for liquidity relief.
Robert Craven
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