Halister News

(Bloomberg) -- Higher EUR headline inflation and the prospect of reaching purchase limit on several EGBs make a ECB tapering decision likely, Societe Generale strategist Adam Kurpiel writes in client note.

• In Q4, the ECB will have to decide about the future of its asset-purchase program, officially expected to end in March 2017 or later
• Buy EUR 6-mo. expiry single-look 10Y CMS ATM cap contingent on EUR 2Y rate remaining below ATM+10bp
• Headline inflation going toward 2% in early 2017, the Fed’s policy normalisation and the nearing tapering of the ECB’s APP imply bear-steepening risks to the EUR curve in late 2016, with front and intermediate sectors anchored by durably low-key policy rates and 4y maturity TLTRO II
• Trade benefits from persistently cheap EUR long rates volatility despite upcoming event risks
• Risks: Premium is lost if EUR 10Y rate remains low or if the 2Y rate increases above the ATMF+10bp barrier around -0.05%