GILTS and pound might reverse course post UK budget – book profit on prior short calls

Budget presented by UK chancellor shows that the deficit reduction is smaller than what market was anticipating.

Debt management office (DMO) of UK said it will reduce sales of short term bills and will be financing through longer end of the curve. DMO has cut Gilt issuance by £ 3.5 billion for the long end, much below, what was expected by market. Major reduction will be achieved by cutting short term bills by £ 10.5 billion.

In the budget Mr. Osborne opted for much smoother deficit reduction, which means the surplus will be achieved a year later in 2019/20 that what was anticipated by Market.

GILTS have reversed course -

• 2 year yield which was down almost -6.7% for the day is up 3.4% so far.
• 5 year yield was down almost -3% is now up 3.7% so far.
• 10 year yield was down -2.5% is now up 4.2% so far.

Pound is yet to gain some ground against dollar. Currently trading at 1.535 after making low at 1.533.

We were short on pound at 1.576, targeting 1.548 and 1.532-1.535 area. It is advised to book most of the profits, though small position can be left for speculation.