HALISTER1: Asset Manager Positioning May Drive H7/M7 UST Futures Roll: RBC

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: HALISTER1
Source: BFW (Bloomberg First Word)

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Michael Cloherty (RBC Capital Markets LLC)

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