- Patrick Young
- Hedge Fund Manager Hendry Bets on Deflation With U.K. War Loans
- www.bloomberg.com
Summary
The perpetuals in the UK Gilt market have long been sleepy but have an intriguing habit of coming alive once a generation or thereabouts to provide a wonderful trading opportunity.
Analysis
Knowing Hugh a little from wondrous debates over the digital despatch box in the studios of CNBC, I would imagine he didn’t opt for the tax free Gilt purchase option at the UK Post Office but has instead provided some leverage to a trade with interesting tenor.
By dint of their remarkably low coupon (by post WWII benchmarks anyway), the UK perpetuals have had various flurries (e.g. when UK rates collapsed after the ERM debacle in the 1990s and then headed on down for quite some time) and this time Hendry has demonstrated an interesting angle by buying into one of the more intriguing “old faithfuls” (literally!) of the UK government bond market.
Certainly with the UK economy approaching a dizzying spiral that hasn’t been seen since the last Labour government (one wonders is there a lesson here), the likelihood in this climate is that deflation can hit and indeed that the marketplace will see any form of yield as being a useful boon on top of the first priority which remains security of capital.
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