HALISTER1: Hedge ECB by Buying EUR 6m30y Swaption Payer Ladders: BofAML

Hedge ECB by Buying EUR 6m30y Swaption Payer Ladders: BofAML

(Bloomberg) -- See risk that ECB will try and draw a line under the market’s expectation for rates to go deeper into negative territory, BofAML strategist Ralf Preusser writes in client note.
  • More risks are weighing on 30Y rates, such as:
    • ECB has front-loaded QE purchases by ~EU22b YTD
    • CSPP program has so far surprised in its aggressiveness
    • Possibility that Draghi may be forced to signal some flexibility regarding the capital key
  • Buy 6m30y ATMF+25bp/+50bp/+75bp payer ladders for a net premium of EU950k on EU100m notional
  • With strikes of 1.11%/1.36%/1.61%, breakevens are between 1.14% and 1.82%
  • High reached during last year’s bund tantrum was 1.81%
  • Risk to the trade is a selloff greater than 100bp
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Ralf Preusser (Merrill Lynch International)

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