Halister News

(Bloomberg) -- EUR rates market has surrendered to the general search for carry, as the ECB has pushed back against idea of change in forward guidance, while investors believe any tapering decision will not come before September at the earliest, write BofAML strategists including Ralf Preusser in a client note. 

• Lack of major risk events in the meantime further supports carry and roll positions
• Most attractive position for in govt bonds for carry and roll is Italy, clearly standing out vs peers after adjusting for vol
  • Attractiveness of 2y sector in particular may explain the large drop in open interest on the BTS (2y Italian bond future) as rates rallied over the past ten days and short positions have been closed
• In swaps, flies and steepeners offer better carry alternative to short positions; consensus short view is largely negative carry, find that 7s20s and 5s10s steepeners offer positive carry with more attractive entry levels than short 10s
  • Longer-term relationships also show long the belly of 2s3s5s and short that of 5s10s15s are also highly directional with better entry levels and carry than short positions in 5s
• In vol, selling payers, buying receivers, receiver spreads/ladders or a combination of those are the most common expressions of “carry” trades in rates vol; offering long rates and short vol profile
  • With vol, payer skews cheap, the attractiveness of short payers is limited; in the front-end, zero cost receiver ladders/spreads could offer value for those who believe the ECB will insist on the current sequencing without appearing excessively dovish

To contact the reporter on this story: Stephen Spratt in London at sspratt3@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net David Goodman