UK rates review: Barclays

Barclays notes:

We expect early richening in the upcoming Gilt roll as short positions in the front contract are closed. This will likely be accompanied by short-term cross market outperformance versus Bunds and USTs.

We are entering the beginning of the roll period for the Long Gilt Future contract. First notice for the June 2015 contract is 28 May. With carry positive over the delivery month from being long, UKT 5% Mar 2025 the cheapest-to-deliver (CTD) issue, delivery into underlying longs will take place on the last working day of the delivery month (30 June). 

Open interest is at its highest in over six years but in contrast, volumes traded have fallen. The heightened volatility evident in fixed income markets globally, most notably in the Bund market, has seen the intraday spread between the highest and lowest prices move sharply higher to reach around 75 cents, up from around 50 cents at the beginning of the year. 

The decline in volumes coupled with wider intraday ranges signals the difficult liquidity conditions across all fixed income markets. The surprise result of an outright majority for the Conservative Party saw some re-establishment of open interest.

However, the general trend suggests there is little incentive to add to existing risk at this point.