HALISTER1: Buy Schatz 112.10/20 Call Spread, ECB May Remove Depo Floor: RBC

Buy Schatz 112.10/20 Call Spread, ECB May Remove Depo Floor: RBC

(Bloomberg) -- Good risk/reward opportunity is opening up through Schatz options, recommend buying October expiry 112.10/20 call spread paying 1.5 ticks, to position for ECB potentially removing depo rate floor, writes RBC in a client note.
  • ECB to contemplate removal of depo rate floor on PSPP purchases in Sept. 8 meeting, to avoid squeezing the long end of the bund curve
  • Market would expect bund buying to shift significantly down the curve again, which should make Schatz richen again
  • Estimate DUZ6 would trade ~112.15 if 2y yields were to retest all-time low at -70bps; maximum profit of 10 ticks seen if yield reached around -72.5bps
  • In bund volatility, market is priced for the range to hold, despite event risk from Jackson Hole, Sept. ECB and BOJ meetings, and others over coming weeks
  • See good risk/reward in owning October bund (expiry 23-Sep) 165 straddle on RXZ6, available for ~180 ticks, which translates to ~13bps yield breakeven
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

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