Halister News

(Bloomberg) -- Long-dated EUR vols on long rates attractive as expect recent spike in callable issuance to subside, Barclays strategists, including Amrut Nashikkar, write in a client note.

• Recommend buying EUR 7y30y vs 7y10y straddles
  • Positive vol roll-down with the spread between 30y and 10y vols increasing as the time to expiry falls
  • Overall 1y carry of the trade is also somewhat positive, despite the sharper rate roll-down of 10y rates
• EUR bottom right did not underperform even as issuance of callable notes spiked
• Issuance of long-dated callable notes has also spiked over the past month, with supply in 2Q already being the highest since 2013
• Expect this spike in issuance to be a one-off event, with improvement in financial conditions since March likely having led to the release of some pent-up demand for such notes
• Over the coming months structured note issuance is likely to be slow, given the extremely low levels of long-dated rates
• Rates in EUR are so low that even with a pick-up obtained from selling options, the absolute yield on the trade may still not be attractive enough for investors