HALISTER1: U.S.-German 10Y Convergence, 2y Swap Wideners Backed by Barclays

U.S.-German 10Y Convergence, 2y Swap Wideners Backed by Barclays

(Bloomberg) -- USTs have “limited room” to underperform other safe-haven debt, and USD swap spread widening should continue, especially at short end, Barclays strategists led by Rajiv Setia say in April 21 note.
  • Barclays continues to recommend U.S.-German 10Y convergence trade, outright and conditionally (via selling ATM+~40bp 2y*5y payers, buying EUR 2y*5y payers)
    • Growth rates are “gradually converging” and inflation remains below target in both regions
  • Drivers of USD swap spread widening over past few weeks include:
    • Lighter dealer net inventories of USTs, easing balance sheet constraints
    • Positive carry, especially at front end
    • At longer end, rate selloff and risk-asset gains curb likelihood of receiving from insurance companies, and could even lead to unwinding of existing receive-fixed hedges
  • Recommend being long 2y swap spreads, remaining neutral on long-end spreads because of balance-sheet constraints and potential for a risk-off event to create receiving need
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Rajiv Setia (Barclays PLC)

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UUID: 7947283

HALISTER1: UST MORNING CALL: Treasuries Steady; BMO Sees Pressure on Rates

UST MORNING CALL: Treasuries Steady; BMO Sees Pressure on Rates

(Bloomberg) -- Treasuries little changed overnight as risk assets stabilize, while bund futures are range-bound.
  • No data, Fed speak, expect a light inside day of activity, continue to lean bearishly though without great conviction, CRT’s David Ader writes in a client note
  • Looming Fed meeting and uncertainty over communication may be behind the less-than-expected dip-buying into UST weakness, RBS’ John Briggs and Blake Gwinn write in a client note; look to take advantage of further sell-off ahead of FOMC meeting
  • Issues maturing July, Sept. 2017 trade ~0.7bp cheap to fitted curve; sector offers value at current levels, given positioning is now more balanced, writes JPMorgan’s Jay Barry in a client note
  • Near-term dynamics favor more pressure on US rate, particularly if FOMC leaves potential for June increase, like selling front-end, 3Y for short-term trade, writes BMOs Aaron Kohli in a client note
  • Technicals
    • Resistance 129-29 (April 21 high), 130-02+ (April 20 mid price), 130-06+ (April 14 low)
    • Support 129-14+ (April 21 low), 129-09 (61.8% Fibonacci), 128-31 (March 28 low)
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Aaron Kohli (Bank of Montreal)
Blake Gwinn (RBS Securities Inc)
David Ader (CRT Capital Group LLC)
Jay Barry (JPMorgan Chase & Co)
John Briggs (RBS Securities Inc)

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UUID: 7947283

HALISTER1: Bund Selloff Tactical; Enter 2Y Forward 10s30s Steepener: Citi

Bund Selloff Tactical; Enter 2Y Forward 10s30s Steepener: Citi

(Bloomberg) -- Still geared for lower rates as low inflation continues and more ECB action is expected by Sept., Citigroup strategists including Harvinder Sian write in note.
  • Bund selloff seen as tactical but keep an eye on the regulatory treatment of bank sovereign holding at the Ecofin meeting
    • Policy makers are leaning toward large exposure limits and this will mean a large amount of bonds need to change hands
  • Enter EUR 2y fwd 10s30s steepener; target 40bp, stop 10bp, roll +14bp over 12-mo.
    • Rationale for the trade is stable outlook for long end making carry trade attractive in forwards
    • Risk is largely orientated around risk-asset collapse
  • Enter 10s30s RPI steepener; target 40bp, stop 19bp
    • Scale of recent flattening looks excessive vs usual beta
    • Long-term stability of the range for 10s30s RPI suggests it may begin to turn
    • It is not obvious that there will be a sudden resurgence in structural demand for 30y RPI
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Harvinder Sian (Citigroup Inc)

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UUID: 7947283