Halister News

(Bloomberg) -- Hurdle for next rate increase by the Fed has been lowered since April FOMC minutes show most participants want to retain optionality of raising rates in June/July, Barclays strategists including Rajiv Setia write in a client note.

• Barclays recommends maintaining 5s30s flattener
  • Despite recent flattening, 5s30s still ~10bps too steep vs fair value, willingness for Fed not to fall behind curve keeps term premia low
• Recommends buying 6m3Y ATM, ATM+27bps 1x2 payer spread at zero cost
  • FOMC minutes sounded more hawkish; increased uncertainty about Fed has caused top-left vols to move slightly higher, now attractive for short vol trades targeting higher rates
• Ahead of next week’s supply, recommends being short 7s on 3s7s10s fly, hedged for market directionality
  • Sector looks rich by ~4bps; fly tends to cheapen ahead of auction, typically by ~3bps