UK Rates: Markets more wary of the BoE - TDS

Renuka Fernandez, Senior Rates Strategist at TD Securities, suggests that they enter into a 10y US-UK bond spread tightener at current levels of 76bps (12.5k DV01).

Key Quotes

“We will look to double up on this position if the spread wideners further to 80-85bps. We estimate that the market is priced for GBP50-75bn of QE over a 3m period and on rates is priced for 33bps of cumulative cuts by year-end. Whilst our macro call is marginally more aggressive that what is priced, we would argue that the probability of a 50bps cut from the BoE is now lower. Given this the probability that we have seen the lows in 10y Gilts (which got as low at 72bps immediately before the July BoE meeting) is now higher. 10y US yields on the other hand are unlikely to sustain these highs given search for yield flows.”