HALISTER1: Large Month-End Extension in EGBs; OATs, BTPs to Benefit: Mizuho

Large Month-End Extension in EGBs; OATs, BTPs to Benefit: Mizuho

(Bloomberg) -- Increase in average duration of EGB indexes this month-end will be a large 0.13 yrs, which should be supportive for cash bonds, Mizuho rates strategist Antoine Bouvet writes in client note.
  • Significant extension is result of large long-end supply, bonds dropping out of the index; typical Feb. extension since 2011 is 0.05 yrs
  • Austria, Italy, France main beneficiaries from extension flows; buying may be most significant for France as new 30Y Italy, Austria syndications may have captured some of the flow
  • Recommend selling out of France 10/2022 to own 11/2025 to take advantage of the widening of this spread in RV, in anticipation of Japanese demand for 10Y OATs
  • In Italy, see 09/2022 as cheap; should benefit from carry- driven demand if volatility wanes; more protected in high volatility than surrounding issues
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Antoine Bouvet (Mizuho Financial Group Inc)

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