Halister News

(Bloomberg) -- Front-end steepeners favored, positioning for 5Y sector to continue cheapening even after March 15 Fed rate increase has been almost fully priced in; mixed views further out the curve as monetary, fiscal policy remain uncertain in near-term.

• BofA (strategists including Shyam Rajan)
  • Market-implied Fed outlook still favors short 3s, positioning for higher June Libor and receiving May FOMC OIS as hedge
  • Remain bearish rates, expecting 10Y to test 3% by mid- year
  • Express bearish 3Y call via selling 2s3s5s swap butterfly at -6bp level
  • Buy EDM7 98.625 puts for 4.5bp given attractive risk/rewards versus underlying price level and credit risk rising ahead of France election (Libor-OIS widener)
    • Tactically hedge by receiving May FOMC OIS (hike in March and May unlikely)
  • Remain short real rates (paying 10Y real swap) and long 30Y spreads

• Morgan Stanley (strategists led by Matthew Hornbach)
  • Short 5Y ahead of March FOMC on potential dots change, MORE

• TD Securities (strategists including Priya Misra)
  • 10Y should stay rangebound between 2.33% and 2.50% until there are signs of progress on tax reform; discussion of Fed portfolio runoff will pressure rates higher later in the year, offset by low global rates and lower terminal funds rate than in prior cycles

• Barclays (strategists including Rajiv Setia)
  • Close out short April Fed Funds futures trade, initiated Feb. 24; maintains long 10Y and 3s10s flatteners; MORE

• JP Morgan (Jay Barry, Bruce Sun and Phoebe White)
  • Turn duration bearish, initiate 2s5s steepener; MORE

• Citi (Jabaz Mathai and Jason Williams)
  • 5s30s steepener recommendation at risk given expected higher front-end rates and potential for assessment of higher neutral rate should terminal rate in the cycle cheapen beyond 2.25%
  • Duration-neutral trades for potential equity market correction include long 5s or 10s versus wings, selling 5y5y breakevens and receiving 30Y swaps
  • Futures positioning suggests debt ceiling plays; MORE