Halister News

(Bloomberg) -- German flattener is at relatively attractive levels following recent EGB supply at the long end, especially from France, HSBC strategists including Wilson Chin write in a client note.

• Buy 20y DBR4 Jan. 2037, sell 5y OBL0 April 2021
• NOTE: Yield differential on 5s20s now 93 bps
• See value in long-end Bunds and other high-rated sovereigns
• QE-induced yield hunt is likely to flatten the German curve and compress AAA and AA rated euro zone sovereign spreads
• Bund yields are likely to stay low but should be floored by signals that the ECB’s deposit rate is unlikely to be cut further in the near term and also by the way the TLTRO II is structured
• Remain neutral on periphery, which is neither high-yielding nor a haven, but selling in April has made yields more attractive
• Extending to 8y from 6y in Spain gives the best yield/duration trade-off with a pick-up of around 65 bps
• Favour Italy 10s20s steepener, Ireland 5s10s flattener
• Caution against Portugal ahead of ratings review even if market fears are overstated