EU RATES ROUNDUP: Limited Scope Seen for Large Bund Selloff
Source: BFW (Bloomberg First Word)
People
Harvinder Sian (Citigroup Inc)
Andrew Roberts (Royal Bank of Scotland Group PLC)
Anton Heese (Morgan Stanley)
Cagdas Aksu (Barclays PLC)
Eric Oynoyan (BNP Paribas SA)
To de-activate this alert, click here
UUID: 7947283
(Bloomberg) -- Many analysts see limited scope for a large selloff in bunds, though most continue with a neutral duration bias for now.
Alert: HALISTER1- Citi (strategists including Harvinder Sian)
- Bund selloff seen as tactical; keep an eye on the regulatory treatment of bank sovereign holding at the Ecofin meeting
- Enter EUR 2y fwd 10s30s steepener; target 40bp, stop 10bp, roll +14bp over 12 mos.
- Rationale for the trade is stable outlook for long end making carry trade attractive in forwards: MORE
- BNP (strategists including Eric Oynoyan)
- Closed outright EUR 10y swap receiver in light of the current correction in bunds, waiting for better levels to re-enter
- Heavy redemptions, coupon payments could slow the pace of the correction
- Current low premium on bunds suggests the 10y yield is unlikely to rise much above 0.30%: MORE
- Morgan Stanley (strategists including Anton Heese)
- Suggest investors retain a neutral-duration position in G-4 rates, hold trades that benefit from steeper yield curves globally, including UST 5s30s steepeners, short 10Y bund vs 5Y UST
- EUR rates in the near term to be impacted more by highly anticipated BOJ, political situation in Europe, EU referendum
- Given large upcoming coupon payments, index extensions in France, see further reason to stay long France vs Italy; maintain short IKM6 vs OATM6
- RBS (strategists including Andrew Roberts)
- Roll-down trades still offer great risk reward; disinflationary pressures persist, further ECB easing to come
- Recommend receiving 5Y fwd 1Y rate at 0.56%, target 20bps profit, stop 0.66%; offers positive roll down of 30bps in first year
- Constancio said changes to zero-risk weighting of govt bonds should be global agreement, removes fears of swift regulation change, bullish for periphery
- Expect take-up of over EU1t in LTRO-II, will be supportive for credit, periphery; EU100b-200b of funds likely to go into sovereign carry trade
- Roll-down trades still offer great risk reward; disinflationary pressures persist, further ECB easing to come
- Deutsche Bank (strategists including Francis Yared)
- ECB on hold with dovish bias, as expected; risk assets remain vulnerable to repricing of rates, China’s switch to more prudent policy also represents a risk
- As a general risk-off hedge, recommend entering tactical France 10s30s flattener
- Recommend long 10Y EUR real yield vs USD, which is now at attractive lvls; exit the short 10Y gilt vs UST, maintain long cash breakevens in EUR and GBP
- Carney underlined readiness of the BOE to act should current uncertainty generate financial stresses; exit the GBP FRA-OIS basis widener
- ECB on hold with dovish bias, as expected; risk assets remain vulnerable to repricing of rates, China’s switch to more prudent policy also represents a risk
- Commerzbank (strategists including Markus Koch)
- EUR 3s5s7s IRS fly currently trading about 1.3 sigma below fair value; current fly spreads in EUR stretched across the IRS curve; recommend paying belly of 3s5s7s fly, PCA weighted
- Look to increase duration exposure again at 10y bund yields above 0.25%: MORE
- Barclays (strategists including Cagdas Aksu)
- Recommend investors do not rush to fade the bund selloff; use indirect duration trades such as short 10Y bunds vs USTs, short bund ASW vs Eonia to express a bearish bias on EUR rates
- Reason for short bias include: further ECB easing unlikely in near term, upcoming redemptions have been well flagged: MORE
Source: BFW (Bloomberg First Word)
People
Harvinder Sian (Citigroup Inc)
Andrew Roberts (Royal Bank of Scotland Group PLC)
Anton Heese (Morgan Stanley)
Cagdas Aksu (Barclays PLC)
Eric Oynoyan (BNP Paribas SA)
To de-activate this alert, click here
UUID: 7947283