HALISTER1: EUR, USD Breakevens Still Cheap Relative to Core Inflation: HSBC

EUR, USD Breakevens Still Cheap Relative to Core Inflation: HSBC

(Bloomberg) -- Appetite is strengthening for inflation-linked bonds as downside risks to inflation diminish; U.S. and euro-area breakevens should widen further, HSBC strategist Theo Chapsalis writes in client note.
  • Favor Italian breakevens as the ECB’s policies are likely to drive a convergence between BTPei and OATei breakevens
    • However, breakeven curves will not steepen to last year’s levels due to likely re-openings of OATei47 and Bundei46 along with the possibility of a new 30-year BTPei
  • Opportune moment to initiate beta-weighted shorts on 30-year sector of the U.K. curve ahead of the November syndication
    • Long-end has witnessed a very strong performance so far and valuations begin to look stretched
    • Still value in front-end RPI swap forwards
  • Remarkable that the entire U.S. breakeven curve trades at levels below core CPI at a time when energy-related base effects are turning positive
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Theologis Chapsalis (HSBC Bank PLC)

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