HALISTER1: Expect 10Y Bund Yield to Hit 0.3% in Coming Weeks: Commerzbank

Expect 10Y Bund Yield to Hit 0.3% in Coming Weeks: Commerzbank

(Bloomberg) -- Commerzbank says bunds have become excessively rich, suggests reducing duration given the binary nature of both the June Fed rate decision and U.K. EU membership vote, strategist Christoph Rieger writes in client note.
  • Fed repricing likely to advance further and may push 10y bund yields higher in coming weeks; reduce duration before data next week that may show higher EUR core inflation and solid U.S. payrolls, and brisk supply
  • Impact of U.K. referendum on outright bund yields can be explained by fundamentals; yields falling as risks of market turmoil and weaker growth increase alongside higher probability of a U.K. exit
    • Given other factors that influence yields, close correlation with EUR/GBP is still remarkable and is being driven by Brexit odds
  • Bunds have so far defied headwinds from repricing and changing Brexit sentiment, amid lower supply and higher PSPP purchases
  • Still expect structurally higher scarcity premium in bunds and SSAs, mainly on the back of ECB intervention and regulation
    • Bund longs should be expressed via swap spread wideners with both bobl and 10Y bund spreads expected to reach 45bps in 2H
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Christoph Rieger (Commerzbank AG)

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