HALISTER1: Buy EUR 2m10Y Receivers vs 2m5Y as Bonds Have Room to Rally: SG

Buy EUR 2m10Y Receivers vs 2m5Y as Bonds Have Room to Rally: SG

(Bloomberg) -- Cheap short-expiry EUR swaption vol is an opportunity to set up conditional trades, Societe Generale strategist Adam Kurpiel writes in client note.
  • Buy EUR 2m10y ATMF receivers, sell EUR 2m5y ATMF receivers, PV01-weighted
  • If the 10y bund yield goes below zero, the 5s10s would flatten towards 35/40bp
  • Bull-flattening forces of 5s10s have been reinforced since March ECB meeting by the renewed idea of floored short rates
  • Expect 10y bund yields to trade below zero in 2Q
    • Dovish central banks make bonds resistant to risk-asset rally and if the latter runs out of steam, bonds would be supported further
    • ECB purchases and large cash inflows in April support duration in EUR and induce bull-flattening forces on the curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Adam Kurpiel (Societe Generale SA)

Topics
Negative Interest Rate Policy

To de-activate this alert, click here

UUID: 7947283