EU RATES ROUNDUP: Analysts Turn More Bearish as Supply Re-Starts
Source: BFW (Bloomberg First Word)
People
Giuseppe Maraffino (Barclays PLC)
David Schnautz (Commerzbank AG)
Patrick Jacq (BNP Paribas SA)
Renuka Fernandez (Toronto-Dominion Bank/The)
Vincent Chaigneau (Societe Generale SA)
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UUID: 7947283
(Bloomberg) -- Analysts veer toward a bearish bias in core EGBs; upcoming EGB supply seen by some as a negative; ratings risks in Portugal continue to get attention.
Alert: HALISTER1- Barclays (strategists including Giuseppe Maraffino)
- Resilience of euro area business surveys suggests ECB’s Sept. meeting likely to be very open; continue to believe outright duration, peripheral spread positions don’t offer good risk-reward
- Maintain trades that have relative short German duration, steeper curve, long ASW bias: short 10y bunds vs Treasuries, receive the 15y fwd point on EUR swap curve vs wings, long PGB 4s30s steepeners, long 7y French ASWs
- SocGen (strategists including Vincent Chaigneau)
- Vol market is pricing increasingly higher premiums on high-strike payers vs low-strike receivers, allows set- up of zero-cost proxies for conditional bear-steepeners, an attractive way to hedge against a sell-off
- Recommend buying 1y15y ATMF/+45bps payer spread vs selling 1y5y ATMF payers at zero-cost
- Continue to favor leveraged carry via mid-curve ratio receiver spreads in the belly; ECB unlikely to cut rates, which limits potential for intermediate rates to decline
- Heavy issuance calendar likely to weigh on bond performance, with new benchmarks to be launched: desire to lengthen duration of debt at these record-low yields should continue to limit EUR flattening potential beyond 10y
- Given risks around DRBS rating on Portugal, turn more defensive on non-core debt; continue to prefer SPGBs to BTPs and PGBs; SPGB/bund compression trade flirting with 100bps profit level, recommend lightening exposure given supply, non-core risk events
- Vol market is pricing increasingly higher premiums on high-strike payers vs low-strike receivers, allows set- up of zero-cost proxies for conditional bear-steepeners, an attractive way to hedge against a sell-off
- Commerzbank (strategists including David Schnautz)
- Remain cautious PGBs; unlikely to enter calmer waters over coming month given challenging rating calendar, submission of 2017 budget to European Commission by Oct. 15 as well as supply outlook
- BNP (strategists including Patrick Jacq)
- Expect yields to push higher in both core, peripheral space as market activity and supply resume; curves likely to re-steepen, continues to recommend 2s10s swap steepeners
- 30Y ASW tightening suggests market expects ECB to tackle scarcity issue by removing depo rate floor or deviate from the ECB capital key
- In periphery, SPGB/BTP spread is currently at widest end of the 0bp to -20bp range seen in recent months, due to removal of the Spanish political risk premium; expect this range to hold if long upcoming Italian referendum doesn’t take center stage
- TD Securities (strategists including Renuka Fernandez)
- Rates to remain persistently low, pension/insurance gilt holdings to rise, exacerbating constraints on BOE to buy in the 15y+ sector
- BOE will rely on other financial institutions, predominantly asset managers, to sell gilts; as these holdings aren’t large, lower cover/ratios of 15y+ reverse auctions should persist until late Sept.
- Rates to remain persistently low, pension/insurance gilt holdings to rise, exacerbating constraints on BOE to buy in the 15y+ sector
Source: BFW (Bloomberg First Word)
People
Giuseppe Maraffino (Barclays PLC)
David Schnautz (Commerzbank AG)
Patrick Jacq (BNP Paribas SA)
Renuka Fernandez (Toronto-Dominion Bank/The)
Vincent Chaigneau (Societe Generale SA)
To de-activate this alert, click here
UUID: 7947283