April Flows to Support Flatter ASW Curves, Tighter SPGB/BTP: SG
(Bloomberg) -- Ultra-low rates environment and continuation of the bullish trend in EUR rates over April should fan the quest for return, thereby boosting appetite for longer duration, Societe Generale strategist Marc-Henri Thoumin writes in client note.
- Diminishing carry and volatility-adjusted carry make the risk/reward of owning peripheral spreads less attractive; however, spreads, especially in long dates, are still far off their 2015 lows
- Long SPGB July 2026 vs SPGB April 2021 at 60.5bp in ASW; target 50bp, stop 67bp
- Short SPGB April 2021 vs long BTP May 2021 at 7bp in ASW; target 11bp, stop 4bp
- Risk: negative surprise in Spain would be the formation of a left coalition that doesn’t involve Ciudadanos, though looks unlikely
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