Husselbee creates structured product to short gilts

John Husselbee’s North Investment Partners has constructed its own structured note to effectively short government bonds across the manager’s range of multi-manager funds.

Put together by a leading investment bank, Husselbee is targeting a 12% per annum return on the position, should 10-year gilt yields rise from the current level of about 4% to 6% over the next five years.

With the 10-year gilt yield rising from about 3.7% since initiating the position late last year, Husselbee has already begun to profit from the product.

Husselbee says about £3m of capital is usually needed to created a structured certificate, while he currently has £4m-£5m invested in the note across all his multi-manager funds.

"While it is difficult to directly sell short government bonds, the 10-year swap rate does provide a suitable alternative," Husselbee says.

"The outlook is definitely one of rising gilt yields. While inflation is not a problem at the moment, with debt in the OECD where it is, it is hard to see any scenario for governments other than inflation.

"We still may be a little early in this story, but we think this play will be a profitable one over the next three to five years."

This is not the first time North has teamed with an investment bank, with Husselbee creating a range accrual product on the FTSE 100 in September 2008. The position was sold-off after making about 28% after year one, more than double the anticipated return.