Halister News

(Bloomberg) -- Zero-cost USD rates receiver spreads may appeal to investors looking to hedge the potential of further reduction in odds of Fed hikes but not an outright recession, Bloomberg strategist Tanvir Sandhu writes.

• A 1x2 USD 1y5y receiver spread struck at 1.80% and 2 times notional at 1.50% is close to zero cost; see example structure here priced in SWPM
• A rally in the belly that takes this structure to the breakeven rate would be mostly likely in a recessionary environment/cuts
• U.S. OIS pricing shows cumulative 40% probability of a 25bp Fed rate increase in December vs 50% prior to inflation print (core missed for fourth consecutive month) and miss in retail sales data, while June 2018 shows a probability of 90%
• NOTE: Odds of lower fed terminal rate rising in slow-inflation world, 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 Anil Varma

(Bloomberg) -- Auction supply is relatively heavy in nominal terms at EU14b, though fairly light in duration. EFSF may issue, while Austria also flagged as a possibility. Large redemptions from France may be reinvested toward the end of the week, as cash-flows for the month remain very supportive.

• Citigroup estimates net cash requirement for July in EGBs is - EU121b, the most supportive month all year; in August, gross issuance looks set to fall to its lowest monthly level so far in 2017 at just EU46b
• Seasonal drop in EGB supply has tended to be associated with firmer government bond markets over July, which tends to provide a benign backdrop for rates markets over the summer months: Citigroup
• Outside of auction supply, JPMorgan have been recommending shorts in long-end Austria vs Germany given expectation of a new 10Y+ Austria sale in coming weeks
  • EFSF sent an RfP to banks for a potential syndicated issue next week; their deals tend to weigh on core bonds into pricing
• SUPPLY/REDEMPTIONS: Auction supply may total EU14b, equivalent to around EU11m/bp or 74k bund futures in risk terms
• July 19: Germany to sell 2.5% 08/2046 for EU1b
• July 20: Spain to sell 0.05% 01/2021, 0.40% 04/2022, 1.45% 10/2027; Barclays estimates the size at EU4.25b
• July 20: France to sell 0% 02/2022, 0% 05/2022, 2.25% 10/2022 for EU6.5-7b as well as long- dated I/L bonds
• There’s around EU36b in redemptions from France due to be repaid on July 25, this may be reinvested from late next week due to T+2 settlement; the bonds are an old 12y I/L (EU16.4b) and an old 5y (EU19.3b)
• U.K. to sell new 0.75% 07/2023 for GBP2.75b on July 19; equivalent to around 12k gilt futures
• NOTE: Auction calendar is ECO20 WE

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 Neil Chatterjee