Halister News

(Bloomberg) -- EUR spread options attractive for curve-steepening view with the implied correlation in the 6m 5s30s trading at the highs, Citigroup strategists including Harvinder Sian write in client note.

• Buy EUR 6m 5s30s 1.0%/1.3% cap spread at 5.5c on the idea that medium-term steepening risks are emerging from technical shifts in ECB PSPP parameters
  • Payout ratio is close around 5.5-to-1
• Prefer to trade in the option space at this stage; slope trades in vanilla space run the risk of needing excess precision in capturing the right ECB policy and parameter response, and also in the right sequence
• Bund scarcity issue means that the medium-term picture is a steepening of the curve
  • Steepening could also be seen via a failure to extend the QE timetable, or a PSPP parameter shift on the depo rate floor or capital key