Halister News

(Bloomberg) -- Recommend financing payer spreads in long-maturity rates by selling payers in short or intermediate tails, Societe Generale strategist Adam Kurpiel writes in client note.

• Forwards are pricing a very moderate potential for long rates to increase
• On horizons above 1y, they imply a 5s15s bear flattening, at odds with the curve directionality
• Buy EUR 1y15y ATMF/+45bp payer spread, sell 1y5y ATMF payers; PV01-weighted, zero-cost
• Version of the trade is to replace the 1y5y vanilla payer with the 1y2y3y mid-curve payer, allowing to buy 1y15y ATMF/+70bp payer spread
• Bearish risks loom; ECB and BOJ may be mulling policy-easing options that are less bond-friendly than before; new issuance flow and possible ECB decision to tweak PSPP keep the long-end at risk, at least in relative terms