HALISTER1: EGB Supply Dominates Convexity But Forward Yields Elevated: Citi

EGB Supply Dominates Convexity But Forward Yields Elevated: Citi

(Bloomberg) -- Not convinced that convexity value is driving EGB long-end trends, Citigroup strategists including Harvinder Sian write in client note.
  • While more long and super long issuance is expected, the pickup in markets such as Belgium and Spain look aggressive against outright levels in the context of the low yield environment
  • Implied sovereign forward rates based on constant maturity bond yields:
    • 10Yfwd20Y for France and Belgium are both at 2.3% with the 30Yfwd20Y rate at 2.53% and 3.28% respectively
    • Spanish 10Yfwd20Y is at 3.80% with the 30Yfwd20Y implied forward near 6%
  • These forward rates look high and are confirmed when assessing value in ASW (yield/yield) with the Belgian ASW forward box in 30Yfwd50Y at +244bp
  • Investors should look to extend cash-cash to the super longs to exploit the steepness and at the same time reduce notional risk in Spain and Belgium, as most 30y bonds are trading well above par
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Harvinder Sian (Citigroup Inc)

To de-activate this alert, click here

UUID: 7947283