Wednesday, March 24, 2010

The Morning Call Wednesday 24 March 2010 $EWL

The Morning Call
Wednesday 24 March 2010

The Chancellor will deliver the UK Budget later today.
The median forecast for gilt issuance is £187 billion. This implies a 29% fall in net issuance. Nevertheless, issuance will remain at historically elevated levels and this is likely to remain the case for several years to come.

 We expect higher gilt yields in the coming year driven by higher policy rates. The high level of issuance will likely reinforce the trend and place upward pressure on gilt yields even before the first hike. In this context, the recent rally in 10yr yields below 4% is likely to be short-lived.

 We expect linkers to account for a greater portion of the remit in 2010-11. Linker issuance is likely to be targeted to the long-end and we could see a greater use of syndications.

The combination of higher linker issuance in the long-end and upside inflation risks should help the break-even inflation curve maintain a flattening trend. We
target a move in the 2017-37 BE inflation curve to +50bp from +65bp currently.

The Morning Call

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