- Overview: "Get ready for the cliff-edge. Be maximum long duration of nominal government bonds in safe haven markets. This means US, UK, Germany, in that order, and perhaps others. Be long gold. Think the unthinkable. Get ready for sub 2% on 10-yr USTs; sub 2% on 10-yr bunds; and the UK not far behind, 2.5% 10-yr Gilts. We strongly believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe), and for the global economy (particularly in the US/Europe). We like the risk/reward. Surely risks associated with us being wrong are low (ie, rates just stay where they are, yields back up a little bit). But risks associated with us being right are >10% returns in 10-yr USTs at the same time that equities/commodities will collapse far beyond what even some equity bears anticipate."
- Euro Area: "The run-off of the 1y LTRO is unlikely to see marked impact on periphery short end or a material rise in EONIA, though the OIS curve can steepen. In addition to this subject, in this issue we looked at the Periphery vulnerability via external debt."
- UK: "We update funding numbers post-Budget. We still like Gilts against Europe as a trade & theme, but acknowledge the mere meeting of Budget expectations, coupled with quieter market with less events risks, implies a slower outperformance."
RBS European Rates Weekly 20100625
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