HALISTER1: Avoid Blindly Buying Peripheral EGBs on Dips, Barclays Says

Avoid Blindly Buying Peripheral EGBs on Dips, Barclays Says

(Bloomberg) -- “Buying the dip” might not work as well as it has over the past few years for EGB spreads, especially peripheral bonds, writes Barclays strategist Cagdas Aksu, in a client note.
  • Scenario has changed due to the poor global macro backdrop, the reduced capacity of “more of the same” ECB easing to surprise positively, domestic political and U.K. referendum risks, and positioning
  • Focus on EGB trades with limited downside if risk-on returns to EGB spreads but offer good potential upside if EGB spreads become vulnerable especially if U.K. referendum risks are priced in more notably
  • Recommend short 50% Ireland and 50% Belgium vs Netherlands in 7y as a low-downside U.K. referendum trade, given that EGB spreads price in little risk premium for this
  • Overall, poor risk/reward in outright and curve trades
  • Market is priced in for March 10bp depo cut plus either a modest QE easing or some technical changes to QE
  • Remain short Bund ASW vs Eonia as good risk/reward way to express a short duration view
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Cagdas Aksu (Barclays PLC)

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