Halister News

(Bloomberg) -- Nomura strategists Penglu Zhao, Stanley Sun and George Goncalves issue views Wednesday on Treasury futures calendar roll.

• “Mildly” bullish TUU7/TUZ7; longs should roll early
  • Asset managers’ net position may result in roll widening as recent history suggests; TU may richen by 0.5-1 tick
  • Longs have been fluctuating around peak levels in 3Q, ~18% of open interest, and have been a leading indicators for the roll into the first notice date
• “Mildly” bearish FVU7/FVZ7; shorts should roll early
  • Asset managers still hold record net long, which “is likely to be a source of tightening pressure into the roll cycle”
  • FV roll pace slightly behind the historical avg, which suggests there may be more “catching-up trades” into the first notice date, cheapening the roll
• “Mildly” bearish TYU7/TYZ7; shorts should roll early
  • May be some “marginal widening pressure” on the spread if the long-end experiences some steepening pressure, especially after geopolitical tensions have eased
  • TYU7 exhibits “a decent size of negative basis,” which may help the contract cheapen into first delivery date relative to TYZ7
• “Mildly” bullish UXYU7/UXYZ7; longs should roll early
  • Roll historically has shown “very strong” widening bias into first notice; expect spread to widen ~2-3 ticks into first notice during this cycle
  • Asset managers’ “persistent net short position” has also played a part in richening the roll
• Neutral USU7/USZ7
  • Both contracts share the same CTDs, just like last cycle, and the roll widened before first notice date and stayed within a tight range
• “Mildly” bearish WNU7/WNZ7; shorts should roll early
  • With a large investor base in the asset manager community, WN rolls “may be subject to some tightening pressure”; during seven of the last 10 rolls, WN cheapened into first notice date, “suggesting a persistent bearish bias”
  • Since both CTDs are the same, there may be “limited volatilities”

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Vivien Lou Chen