HALISTER1: Sell Belly of 5s10s30s Bund Fly on Renewed Risk Aversion: SG

Sell Belly of 5s10s30s Bund Fly on Renewed Risk Aversion: SG

(Bloomberg) -- 5s10s30s bund fly tends to move up with rising volatility, which is likely to increase either driven by a hawkish Fed turn that puts the whole risk complex in jeopardy, or more likely as China worries come to the fore again, Societe Generale strategist Jamal Meliani writes in client note.
  • Sell 10Y in 5s10s30s fly at -18bp
    • Sell RXM6 versus OEM6 and UBM6; target -10bp, stop -23bp
  • Seasonal pause in the issuance at the ultra-long end after the strong increase seen in 1Q and 2Q should help re-flatten the 10s30s segment of the fly
  • Risks: further fall in implied volatility combined with unexpected further strong issuance at the long end; unexpected less dovish ECB may also hurt the 5y disproportionally
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Jamal Meliani (Societe Generale SA)

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