Halister News

(Bloomberg) -- April’s record issuance of long-end EGBs was driven by demand from hedge funds likely positioning for duration extension of ECB QE purchases, BofAML strategists including Ralf Preusser write in note.

• Traditionally, long-end demand has come from insurance, pension accounts
  • However, take-up of long-end syndications from hedge funds has almost doubled since 2014 to 15% most recently, from 8%
• Despite record long-end issuance in April, swap spreads have richened, indicating demand is driving the supply
• Hedge-fund demand is likely driven by duration extensions in ECB QE, anticipation of a more sizable and systematic move
• Visible duration extension seen in national central banks’ purchases may be a signal that QE holdings of short-end bonds are close to the issue limit
• Continue to see value in 10s30s flatteners given recent demand driven increase in long-end issuance, PSPP buying being forced out the curve