Limited Scope for Follow Through-Weakness in EUR 5Y Swap: SocGen
(Bloomberg) -- Stick to small long G-4 duration, given ongoing dangers for the economy, limited near-term upside for oil prices, risks to financial stability, writes SocGen strategists including Vincent Chaigneau.
- Soft economic news rotating from U.S. to Europe, still recommend receiving EUR 2Y5Y vs USD and JPY
- See limited scope for much follow through weakness in 5Y EUR swap rates, after the ECB; retain cautiously positive view on non-core bonds, despite the deteriorating credit metrics
- Significant 5s30s bear flattening in GBP, bear steepening in EUR has been seen through March; now attractive to receive 5Y25Y in EUR vs GBP; trade also benefits from rising Brexit fears
- QE top-up to be met mostly by sovereigns, may see negative convexity impact at long-end; if bonds rally Bundesbank risks hitting issue limits, resulting in more long-end purchases
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HALISTER1Source: BFW (Bloomberg First Word)
People Vincent Chaigneau (Societe Generale SA)
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