HALISTER1: Go Long OATei40 vs HICPxT, GBP 30s50s Real Yield Flattener: Citi

Go Long OATei40 vs HICPxT, GBP 30s50s Real Yield Flattener: Citi

(Bloomberg) -- Expect little Europe linker long-end core supply until next year, which should help long-end core break-evens recover, Citi strategists including Jabaz Mathai write in a client note.
  • Recommend buying OATei40 break-evens vs matched maturity inflation swaps; target 9bp, stop 26bp
  • In periphery, remain long Spain real yields vs Italy
    • Stay long SPGBei30 real yield vs BTPei26; entry +5bp, current -4bp, target -12bp, new stop +5bp (from +14bp)
  • Doubt GBP 5s30s break-even inflation curve re-steepening has legs as FX support for the front-end probably has more longevity than QE support for the long-end
    • GBP 30s50s real yield flatteners are worth a look, especially around the time of the conventional 2065s syndication scheduled for the second half of October
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Jabaz Mathai (Citigroup Inc)

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