This is one of the world’s best post-Brexit shorts: Trader

British government bonds could make for a splendid short opportunity after the British vote to exit the EU, according to one macro trader.

"What nobody's talking about is the U.K. is the most indebted nation in the G-20 universe. It has a current account deficit of 5 percent," Boris Schlossberg of BK Asset Management said Monday on CNBC's "Power Lunch." "That will go to 10 percent, which means the U.K. bonds, now trading at around 1 percent yield, are going to be worthless."

Schlossberg's point is that as the British fiscal and economic outlook deteriorates post-Brexit vote, yields will need to rise, meaning prices will have to fall.

"It's one of the best shorts in the world right now" provided that Britain actually leaves the European Union, Schlossberg said.

The Bank of America Merrill Lynch rates and FX research team made a similar point in a note Monday, arguing that the potential "loss of the overseas bid" for British bonds will greatly hurt prices.

The fall in British bond prices could greatly hurt the European banks that hold them in their own balance sheets, which Schlossberg says is the reason financial stocks have been hit so hard.

Evercore ISI technical analyst Rich Ross said the charts look awful.

"We're as low as we were at the depths of 2012 European banking crisis. That's a bad place to be," Ross said. "You're even lower than you were in the financial crisis in 2008 and 2009. So it's not Lehman Brothers, but it's actually worse to a certain degree when we're talking about Europe."

"Sure, there's a modicum of support here, but the price action doesn't give you a lot of confidence that European banks are going to hold and rally off of this key support," the technical analyst added.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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