Buy OTM EUR 1m10y Payer Swaptions as Long-End Stretched: BNP
Source: BFW (Bloomberg First Word)
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Eric Oynoyan (BNP Paribas SA)
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UUID: 7947283
(Bloomberg) -- Bunds seem to have stabilized and have started to correct from last week’s high, BNP strategist Eric Oynoyan writes in client note.
Alert: HALISTER1- If the past is any guide, 20bp correction on EUR 10y swap in less than two weeks has been seen 4 times since last summer every time BNP’s indicators went to expensive levels
- Long-end of the curve at overstretched levels, according to BNP’s quantitative inputs; bund’s implied premium back at the lower side of its range, 5s10s30s swap fly still below its fair value, bund ASW too high and the 5y5y inflation swap below its pre-PSPP lows
- Given the persistent weakness of risky assets until the last few days, the safest trade was to be long a cheap OTM payer swaption
- Recommended the 1m10y with a 0.85% strike, instead of a 3m10y, given the low implied 1m10y volatility vs longer expiries
- Re-enter outright 10y swap receiver or within the 5s10s30s swap fly once correction is achieved
Source: BFW (Bloomberg First Word)
People
Eric Oynoyan (BNP Paribas SA)
To de-activate this alert, click here
UUID: 7947283