Long EUR Rates Despite Rally; Little Value at Front-End: Citi
Source: BFW (Bloomberg First Word)
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Harvinder Sian (Citigroup Inc)
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UUID: 7947283
(Bloomberg) -- Bund yields likely to test and break lows, Citigroup strategists including Harvinder Sian write in note.
Alert: HALISTER1- See little value at the front-end where the ECB deposit rate is priced below -50bp
- However, not initiating shorts because “ECB chatter” about the tiering of deposit facility can maintain pricing and push forwards in the 3-yr+ even lower
- Analysis suggests that the pricing of negative rates further along EUR OIS forwards curve is feasible not just because ECB can take mkt expectations lower with a discussion on tiering, but more remarkably because that may well be the equilibrium
- Recommend EUR 6m10y 0.50/0.35/0.20 receiver ladder
- Rolls positively by 30c on 3-mo. window and loses money at expiry if 10y moves below 5bp, which would require actual delivery of a -75bp to -100bp deposit rate; so risk to the trade would be the delivery of an even deeper depo cut to over -75b; stop at an underlying rate of 0%
Source: BFW (Bloomberg First Word)
People
Harvinder Sian (Citigroup Inc)
To de-activate this alert, click here
UUID: 7947283