Halister News

(Bloomberg) -- Larger risks of domestic inflation in the U.K. and the prospects of domestic LDI activity can both help RPI swaps outperform EUR equivalents, Societe Generale strategist Jorge Garayo writes in client note dated yday.

• Receive 10Y and 30Y RPI swaps vs HICP swaps; target 180bp in the 10Y spread, stop 155bp; target 168bp in 30Y, stop 144bp
• Inflation swaps are more attractive than cash breakevens, particularly at the ultra long-end of the curve
• RPI swaps are pricing little sterling weakness-induced inflation premium into the EU referendum
• RPI swaps are also at historical lows at the very long end of the curve, despite no evidence of reduced LDI hedging pipeline
• Expect asset-swap demand for euro linkers to exert downward pressure on EUR HICP swaps