Halister News

(Bloomberg) -- Bunds yields will probably reach new lows, with preferred models showing negative 10y yields and pointing to wider ASW, Citigroup strategist Harvinder Sian writes in a client note.

• Receive EUR 5y5y swap; expect to reach 0.70%, from entry at 1.04%; stop above 1.27%; 3-mo. carry and roll worth 4.9bps
  • Alternatively, use bund vs OBL benchmarks, with 5y yields at -0.4% and 10y at -0.1%; bund 5y5y yield will probably drop by 41bps from 0.64% currently to 0.23%
  • Risks to trade include another round of China-led reflation, possible illiquidity-driven volatility spikes
• Domestic investors own as little bunds as they have to own, meaning ECB buying can run up against scarcity
  • ECB “got lucky” with foreign official selling; expect offloading by foreign and domestic investors to be much more contained
• Fed is now a bullish risk for European markets as the USD curve undergoes a degree of “Japanification”