HALISTER1: See Large Support for OATs Near-Term; No LTRO Carry Trade: UBS

See Large Support for OATs Near-Term; No LTRO Carry Trade: UBS

(Bloomberg) -- Given upcoming supportive factors for OATs, see good value in being overweight 25Y-30Y France vs Germany, UBS strategists including Justin Knight write in client note.
  • Key supportive factors:
    • Demand from Japanese investors to continue, supported by negative rates in Japan, relative attractiveness of OATs vs USTs
    • Large cash flows from France in April; EU50b to be repaid in coupons and redemptions, particularly in long- end, which outweighs gross supply by EU16b
    • Temporary increase in ECB QE between April to 2Q 2016
  • In peripherals, believe any concept of new carry trades as a result of LTRO-II is misplaced; banks already cash rich, expect limited take-up
  • Room for bunds to ease in near term as growth, inflation pick up in coming months, market too pessimistic
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Justin Knight (UBS Global Asset Management Japan Ltd)

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