HALISTER1: Enter German 10s30s Flattener as U.S. Inflation Slows: Citigroup

Enter German 10s30s Flattener as U.S. Inflation Slows: Citigroup

(Bloomberg) -- The demise of U.S. inflation spells a new bull flattening phase for European rates, led by downward USD terminal rates estimates, Citigroup strategist including Aman Bansal writes in a client note.
  • After already considering long-end flatteners, now pull the entry trigger based on current valuations
  • German 10s30s looks steep based on inflation expectations, 3y1y OIS and German PSPP weighted average maturity, see fair value just below 69bp, vs 81 on Friday
    • The turn latest flatter in German 10s30s has shown impressive decoupling from the swaps market, where a public sector entity may be rate locking in large size
  • Recommends entering German 10s30s flatteners, targeting 65bps, based on expectations of a U.S. led rally and further falls in European inflation expectations; stop above the recent high at 87bps
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

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Aman Bansal (Citigroup Inc)

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