HALISTER1: Enter Bobl-Bund Conditional Bull-Flattener for Brexit Vote: SG

Enter Bobl-Bund Conditional Bull-Flattener for Brexit Vote: SG

(Bloomberg) -- Bund 5s10s bull-flattening momentum may increase in event of a Brexit, Societe Generale strategist Jamal Meliani writes in client note.
  • 5s10s bund curve is still more than 20bp above its all-time low of April 2015 ahead of increased Brexit risks
  • Sell 130 OEQ6 133.50/134.25 call spread vs buy 45 RXQ6 167/169.5 call spread; target 60 ticks, stop zero
  • Sell 130% as many DV01 OTM call spreads on the Sept. 2016 bobl future vs OTM call spreads on the Sept. 2016 bund future
  • Rather than a 5s10s flattener on a duration-weighted basis, implement the flattener in the conditional space and overweight the bobl leg so as to mitigate bobl’s low implied vol vs bund
  • Risks: Change in curve regime and rise in beta of 5Y to 10Y in a rally
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Jamal Meliani (Societe Generale SA)

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