Halister News

(Bloomberg) -- Bias remains for a test of yield lows across markets, with the possible exception of JGBs, Citigroup strategists including Harvinder Sian write in note.

• Macro phenomena likely to drive bonds are:
  • Stimulus efforts have produced little economic dynamism and in many cases added to concerns on debt overhangs (China, U.S. non-financial corporates, EMU sovereigns)
  • Investors continue to be myopic in not treating inflation unanchoring as a side effect of secularly low rates
  • Currency wars are still in train with the danger being that the ECB and BOJ lack the ability or scope to react
• Enter OAT 10s30s flattener vs bunds
  • Using on-the-runs the box is at 25bp; target 10bp, stop above 31bp
  • See little reason for the box spread to trade near the wides given persistent yield grab and 30Y France is still near an attractive 1.50%
  • Statistical RV value is worth 7bp of the trade and the remainder is expected via a movement to 2H 2015 levels as DV01 supply has been front-loaded this year
  • Risk is yet more long-end issuance