EU RATES ROUNDUP: Bias Toward Short Spain vs Italy
Source: BFW (Bloomberg First Word)
People
Harvinder Sian (Citigroup Inc)
Anders Lumholtz (Danske Bank A/S)
Anders Moeller Lumholtz (Danske Bank A/s)
Andrew Roberts (Royal Bank of Scotland Group PLC)
Anton Heese (Morgan Stanley)
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UUID: 7947283
(Bloomberg) -- Analysts retain bias toward lower bund yields; Citi, BNP and Deutsche Bank all recommend short SPGBs vs Italy, given recent tightening despite political risks.
Alert: HALISTER1- Citi (strategists including Harvinder Sian)
- Much less long-end supply over near term, Belgium 10s30s is steepest on cross-market basis; recommend long-end flatteners in Belgium
- Recommend receiving EUR swaps 3Y Fwd 2s5s10s at -5.2bps; motivation is high carry relative to directionality of the trade; use trade to replace 2Y forward starting version
- Cross-market see scope for BTPs to outperform SPGBs due to the political event risk in Spain vs supportive cash flows for Italy in May
- BTP/Bono spreads in 8Y-10Y sector have cheapened most; recommend long BTP 09/2024 vs SPGB 04/2024
- BOE’s ‘appetite’ for a cut vs a hike not as symmetric as is currently priced, continue to expect a steepening in 2s5s GBP
- RBS (strategists including Andrew Roberts)
- Semi-core EMU very tight to core, especially compared to periphery, yet very exposed to risk events, start fading
- France is the most exposed major country if the U.K. votes to leave the EU
- Still like Spain’s growth fundamentals, expect QE, TLTRO-II flows to be supportive, while problems are fiscal slippage, political uncertainty
- Look for relative value on the curve, recommend paying belly of 10s15s30s fly, look for 10bps retracement
- Reiterate GBP 5s30s volatility weighted steepener, looks attractive relative to fair-value, in context of perceived steepening pressures ahead of U.K. referendum on EU membership
- Semi-core EMU very tight to core, especially compared to periphery, yet very exposed to risk events, start fading
- Barclays (strategists including Cagdas Aksu)
- Supply/demand picture for bunds nowhere near as poor as April last year; still scope for further short-term bearish price action, despite recent selloff
- Maintain indirectly bearish trades, short 10Y bunds vs USTs, short bund ASW vs EONIA
- In EGBs, hold short 50% 7Y Belgium, Ireland vs Netherlands; short 6Y Belgium vs Austria; remain cautious on peripherals
- Supply/demand picture for bunds nowhere near as poor as April last year; still scope for further short-term bearish price action, despite recent selloff
- Morgan Stanley (strategists including Anton Heese)
- General message from central banks was that more data is required before acting
- Remain neutral duration overall, but hold short 10Y bund (RXM6) vs 5Y USTs (FVM6)
- Continue to recommend long OATs vs BTPs as bond market indicators suggest tactical longs in semi-core vs periphery, reflective of weaker peripheral equities, worsening carry
- Hold short 10Y BTP (IKM6) vs long OAT (OATM6)
- General message from central banks was that more data is required before acting
- SocGen (strategists including Marc-Henri Thoumin)
- Further rally in bunds should favor a steeper 10s30s in SPGBs given the inverse correlation
- Long SPGB April 2026 vs SPGB Oct. 2046 at 62bp in ASW; target 69bp, stop 57bp
- Expect issuance at the very long end to remain intense, at least as long as EUR yields remain close to recent lows: MORE
- Further rally in bunds should favor a steeper 10s30s in SPGBs given the inverse correlation
- Commerzbank (strategists including Christoph Rieger)
- Use a rise in 10Y bund yields above 0.25% to scale back into longs with the historically high month-end index extension expected to provide additional support
- Expect bunds to rise with duration-intensive issuance increasingly recycled and Fed risks receding
- Curves should remain highly directional, expect 10s30s bund and IRS curves to resume their flattening trend with the bear-steepening/bull-flattening entrenched: MORE
- BNP (strategists including Patrick Jacq)
- Rise in yields has already gone far enough, recommend long EUR 10Y via 3-month expiry risk reversals
- Sell 0.84% (14bps OTM) 3m10Y payer vs buying 0.57% (12bps OTM) receiver at zero cost
- Spain has outperformed Italy, despite parties failing to form a govt; supply/demand favored SPGBs over BTPs in April, but this will reverse in May
- Enter SPGB/BTP 10Y wideners at 6bps, target 20bps, stop -2bps: MORE
- Rise in yields has already gone far enough, recommend long EUR 10Y via 3-month expiry risk reversals
- Deutsche Bank (strategists including Francis Yared)
- Maintain existing macro trades, (tactical) France 10s30s flattener, long 10Y cash breakevens, long EUR 10Y real rate trade vs US, long 10Y UK cash breakevens
- Recommend short 10Y Spain vs Italy; political situation in Spain resulting in fresh elections on June 26, not obvious polls will help reduce the political uncertainty
- Danske Bank (strategists including Anders Moller Lumholtz)
- Close long Spain vs Italy, new general elections in Spain, budget risks, suggest short term risk for SPGB underperformance
- Ireland continues to keep struggle even though upcoming Brexit referendum leaning in favor of remain; maintain long 10Y Ireland vs France
Source: BFW (Bloomberg First Word)
People
Harvinder Sian (Citigroup Inc)
Anders Lumholtz (Danske Bank A/S)
Anders Moeller Lumholtz (Danske Bank A/s)
Andrew Roberts (Royal Bank of Scotland Group PLC)
Anton Heese (Morgan Stanley)
To de-activate this alert, click here
UUID: 7947283