Asset Manager Positioning May Drive H7/M7 UST Futures Roll: RBC
(Bloomberg) -- RBC strategist Michael Cloherty issues views on Treasury futures calendar roll in Feb. 15 note.
- NOTE: First notice for Treasury futures complex is Feb. 28
- Buy TUH7/sell TUM7
- Cycle may be entangled with activity in swap spreads, as 2Y invoice spreads are hitting levels where they will be “attractive shorts” when June roll “begins in earnest”
- Remaining issue is that repo is “very soft” and should stay so through March 15 debt ceiling suspension period
- Buy FVH7/sell FVM7
- “Colossal” open interest and asset manager positioning will likely dominate the the roll regardless of valuation
- Buy TYH7/sell TYM7
- May be one of the more volatile rolls, as a “huge amount of open interest needs to roll in a tight window”
- March CTD ~1bp cheap to June CTD, though the gap has been in place for most of the past month
- Buy UXYH7/sell UXYM7
- Leveraged longs “much smaller” than during last cycle, which suggests positioning is “far less important” than it is for other contracts with less liquid CTDs
- June CTD is 1bp richer than March CTD and has also richened relative to the swap curve
- Buy USH7/sell USM7
- Asset managers should support the cycle because everyday flows are larger than in WN contract, so the roll should be “less jarring”
- Sell WNH7/buy WNM7
- Asset manager roll may be “even more powerful than normal,” given the increase in cumulative WN open interest, net longs and 30Y swap spreads
- Roll before the second half of next week, because asset manager positioning may “swamp that valuation advantage”
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Michael Cloherty (RBC Capital Markets LLC)
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