Halister News

(Bloomberg) -- Expect 10Y bund yields at ~1% by end-2017 as ECB likely to indicate further cut in asset purchases next year as inflation outlook improves, Deutsche Bank strategists including Abhishek Singhania write in client note.

• Despite this outlook, remain cautious on core euro-area rates given ECB’s insistence on maintaining QE, divergences in euro-zone economies, optimistic inflation forecasts, political event risk
• Reduction in pace of ECB QE to EU60b from April 2017, plus any further tapering should have a greater effect on semi- core and peripheral bonds rather than core
  • Prefer holding short position in EUR rates expressed via 50% short in France, 50% in Spain
• Technical parameter changes to PSPP to significantly reduce duration of purchases in core countries; less long-end buying to result in steeper curves and tighter long-end ASW
  • This combined with rising issuance in Netherlands, largely due to redemptions, suggests DSL 10s30s steepener; also recommend Buxl ASW tighteners
• In U.K., rates to be driven by global shift in policy mix, rising issuance, the extent to which economic resilience continues and uncertainty over the political outlook
  • Anchored front-end, plus policy shifts should lead to steeper curves; recommend gilt 10s30s steepeners