Scale Into Conditional USD/EUR 6m5y Spread Wideners: Commerzbank
Source: BFW (Bloomberg First Word)
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Markus Koch (Commerzbank AG)
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UUID: 7947283
(Bloomberg) -- Scale into a USD/EUR spread widener in the belly of swap curves to capitalize on divergent policies of major central banks, Commerzbank strategist Markus Koch writes in client note.
Alert: HALISTER1- Buy USD 6m5y swaption payers vs premium-neutral sale of EUR 6m5y payers, targeting a ~30bp wider spread on 6-month horizon
- As a hedge against the resulting net DV01 exposure of the zero-cost position, rely on the ECB cap, “free of charge”
- Assuming USD 5y IRS rises by ~25bp to reach 1.65% at expiry, P&L is cushioned against losses, unless EUR 5y IRS were to rise by more than 13bp
- Swaptions would expire worthless under most bullish scenario, preventing a negative P&L result while a vanilla IRS set-up would incur a loss
Source: BFW (Bloomberg First Word)
People
Markus Koch (Commerzbank AG)
To de-activate this alert, click here
UUID: 7947283