Algebris head Serra says shorting gilts safest fixed income bet

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Divorcing from the EU will cost the UK £140bn, or 7.5 per cent of gross domestic product, the head of the London-based Algebris hedge fund said on Monday, as he suggested betting against the country’s debt.

Davide Serra said at the annual Sohn Conference that the “safest fixed income bet globally” is shorting gilts.

Here are a few reasons he cited:

  • Trade pacts historically take six to seven years to forge.
  • The country’s “weak public finances”.
  • “Stagnant productivity” in the labour market.
  • “Growing social imbalances”.
  • “High household leverage”.
  • The more than 2 percentage point spread between the 10-year gilt yield, and 10-year inflation expectation.

The 10-year gilt yield, which trades in the opposite direction of the price, was up by 0.03 percentage point to 1.145 per cent on Monday. It traded at 1.311 per cent the day before the Brexit vote last June.

Lindsay Fortado contributed reporting.

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