HALISTER1: Sell Bund ASW vs Eonia to Express Short Duration Bias: Barclays

Sell Bund ASW vs Eonia to Express Short Duration Bias: Barclays

(Bloomberg) -- Risk assets have stabilized, U.S. and U.K. forwards are selling off while German rates have lagged, writes Barclays strategist Cagdas Aksu in a client note.
  • EUR rates have lagged the sell-off as EUR 5Y5Y fwd rates have rallied less than U.S. or U.K.; EUR rates market may be nervous about upcoming ECB meeting
  • If risk assets continue to rally, difficult for EUR rates not to follow a rates sell-off; do not expect ECB to deliver very bold QE package; swapped issuance may also pick up
    • Recommend selling Bund ASW vs Eonia to position for a rise in longer German rates, currently -11.5bps; target up to 6bps of tightening
  • Don’t see compelling conditions for notable tightening in peripheral spreads, remain neutral near term
  • Negative U.K. policy rates seems very unlikely, though should not be wholly discounted
    • Front-end OIS is very flat; should re-steepen if the MPC eases further or pushes back against current pricing
    • Recommend entering GBP 1Y/1Y1Y FWD OIS steepeners, target 35bps, stop at -10bps
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Cagdas Aksu (Barclays PLC)

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