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British Bloodbath – UK Gilt Yields Spike Above 1% As Inflation Expectations Soar To 3 Year Highs

Friday, October 7, 2016 10:51
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The fallout from Theresa May’s confirmation that the government will follow the will of the people continues. The flash-crash in cable overnight catalyzed just how bad this week was for the Brits.

On the week, the pound fell more than it did overall during Brexit week…

And the currency weakness amid growing concerns over UK’s so-called ‘hard Brexit’ has sparked major fears it will send inflation soaring…

And that has battered bonds.

UK 10Y Gilt yields spiked back above 1.00% for the first time since June 27th (immediate reaction post-Brexit)

Finally, this appears far from over as traders begin to bet on further dramatic weakness in Cable…

What was close to unthinkable for the pound before the Brexit vote is now firmly on some traders’ minds.

They’re betting sterling will tumble to parity with the dollar, a level unseen in the U.K. currency’s history.

In recent days, a number of wagers were put on for a one-for-one exchange rate, according to Depository Trust & Clearing Corp. data.

“Certainly there are a few calls for parity, yes — there are a few that are positioned for it, that is their target and objective, or they’re hedged for fear it might go in that direction,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “I wouldn’t say it’s a mainstream view,” but “the structural downtrend is probably still intact for now.”


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