Halister News

(Bloomberg) -- Carry trades are benefiting from investor reluctance to extend duration, low volatility and Fed dovishness, and wide cross-currency basis vs USD has created “historic ‘reverse’ carry trade opportunities,” BNP strategists Shahid Ladha and Daniel Totouom-Tangho say in note.

• Best carry at short end for USD investors is in JGBs and core European sovereigns (France, Germany and U.K.)
  • Inflows should continue as long as cross-currency basis in USD/JPY, EUR/USD remains wide, however QE may limit availability of bonds
• Preferred domestic carry trade is short-dated TIPS; winter carry on long 5Y TIPS position over next 15 months “should be the greatest and smoothest carry” seen in past 5 years
• They recommend long 5y TIPS breakeven at 1.59%, targeting 1.80%, stop at 1.52%
• Supportive factors include accelerating headline inflation, strong domestic economy and slow Fed tightening path, rising gasoline prices, and inflows to TIPS ETF