Halister News

--AMY THOMSON

(Bloomberg) -- Lack of gilt supply in the coming two weeks plus upcoming cash flows, index events should keep the recent gilt outperformance on track, writes RBC Strategist Vatsala Datta in a note Wednesday.

• Expects gilts to outperform USTs in the short term due to supply dynamics; also likely to outperform in the medium term as BOE finding it hard to increase rates with the risk of Brexit looming
• Positive cash-flow dynamics in the near term; UKT 8.75% Aug. 2017 will redeem Aug. 25, which extends FTSE All Stocks index by 0.06y with index re-balancing to be done by the close of business Aug. 24
• 17 conventional gilts will pay coupons worth GBP8b on Sept. 7, with GBP4.3b to be returned to private sector (ex-BOE holdings); this will extend FTSE All Stocks Index by 0.06y and will take effect at close of business Aug. 25
• UKT 1% Sept. 2017 conventional will mature on Sept. 7; will extend FTSE All Stocks Index by 0.27yr, takes effect at close of business Sept. 6
  • Also Sept. 7: UKT 3.75% Sept. 2020 will roll sub-3yr and will become ineligible for further APF purchases after this date; this is most likely the reason why the bond has been under relative pressure of late

To contact the reporter on this story: Conor Molumby in London at cmolumby@bloomberg.net To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net; Ven Ram at vram1@bloomberg.net Stephen Spratt

(Bloomberg) -- Bund call skew picks up as risk markets start to crack after Trump steps up North Korea rhetoric.

• See bund skew chart here with Sept. 25-delta call vol edging higher by 0.5 to 4.04 with generic yield probing 0.44% (July extension, chart here)
• Beyond geopolitical risks, there are limited fundamental catalysts for further rally between now and Jackson Hole with a lack of macro data and ECB speakers
• Seasonal decline of QE purchases in August due to reduced liquidity as summer EGB supply dries up may marginally counter duration in the near term, given the front-loading in Jan.-July
• Second half of August will see focus on the return of supply in Sept. and the next major event risks (Jackson Hole on Aug. 24-26 and ECB meeting on Sept. 7), which may see downside bund skew richen
• NOTE: Positive carry trades in vogue throughout August, with peripherals favored, while hedging via swap spreads may increase as consensus builds; see more here
• NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

To contact the reporter on this story: Tanvir Sandhu in London at tsandhu17@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Neil Chatterjee

(Bloomberg) -- Positioning is set to be main driver of the Sept./Dec. Eurex roll, with investors currently set for flatter German curves with a net short speculative bias in Schatz and Bobl futures, neutral positioning in Bunds and net long speculative positioning in Buxl, Citigroup strategist Michael Spies writes in a client note.

• As a result Citigroup is bullish on Schatz and Bobl rolls given the short positioning, while bearish on Bund and Buxl
• In Bund, speculative positioning is neutral with same CTDs in both contracts, and there no historical patterns in previous RXU/RXZ rolls; prefer to be bearish based on fair-value calculations for the roll
• In Schatz, a CTD switch in the back contract is highly probable once the new Schatz Sept. 19 is issued at the end of the month
• Compared to previous Sept./Dec. Eurex rolls, open interest in current front and back contracts is very high

To contact the reporter on this story: Stephen Spratt in London at sspratt3@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Keith Jenkins