Strategists at Morgan Stanley like to position for fewer BOE interest-rate hikes than the Fed through interest-rate futures. Analysts at BMO and Citigroup favor the belly to underperform on the gilt curve.

Morgan Stanley: (strategists including Fabio Bassanin)

Recommends buying June 2027 SONIA versus selling June 2027 SOFR given the attractive spread and the US bank’s view that the UK front end will price a less hawkish rate-hike path; cross market view is preferred given attractive relative valuations and to limit exposure to a broader global repricing of front-end rate expectations

Recommends 5y5y/10y10y SONIA steepener given its appeal after flattening more than G3 peers; trade is preferred in forward space to limit exposure to front-end rate expectations, while this segment offers attractive roll

BMO Capital Markets: (strategists including Laurence Mutkin)

Recommends selling the belly of 2s7s30s correlation weighted gilt fly given the wings are anomalously and unsustainably cheap versus intermediate maturities; trade offers yield pick up and earns positive carry and roll-down; supply will give the wings a tailwind relative to the belly; fly rolls better in swaps but gilts have scope for a bigger move

Citigroup: (strategists including Jamie Searle)

Makes sense to be tactically and strategically underweight the belly versus the wings in gilts given the main market implication from the US bank’s remit forecast is that the belly is likely to see the greatest pick-up in issuance pressure over the coming months; separately, the front could benefit over longer horizons from a reversal in excessive BOE rate-hike pricing

Goldman Sachs: (strategists including George Cole)

Scope remains for OAT-bund spread to tighten if afforded benign core rate relief and/or lower core rates volatility, even though conviction on the ultimate landing zone is low; the spread has outstripped what can be explained by fundamentals and trades well above what the US bank expected to be the stressed level of 100bps into the elections