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Liffe launches shorter-dated gilts

Not for the first time. NYSE Liffe is to introduce short-date futures to compliment its existing long gilt future. The exchange tried out the same initiative back in 1985 and again in 1998, but the world is a different place now.

As the exchange points out: “The record levels of debt issuance by the UK government, combined with the unprecedented quantitative easing programme being carried out by the Bank of England, has led to considerable uncertainty about the nearer-term outlook for UK interest rates, stimulating demand for shorter-dated derivatives instruments to manage risk.”

“Given current economic conditions, we decided to ask a range of customers – including gilt-edged market makers, sterling swaps desks, individual proprietary traders, hedge funds and asset managers – whether they wanted shorter-dated gilt contracts. We found near universal demand, because there is a widespread feeling that, as far as future interest rates are concerned, we are entering uncharted waters,” say Paul MacGregor, director of NYSE Liffe fixed income.

The new contracts will be physically deliverable, have a 6% coupon and a £100,000 notional value.

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