Halister News

(Bloomberg) -- Still see scope to pare duration at current levels, looking to add at 10y yields closer to 0.25% with core paper caught between supportive cash flows and headwinds from recovering risk sentiment in coming weeks, Commerzbank strategists including Christoph Rieger write in client note.

• Bunds are exhibiting resilience in the face of recent equity gains and the hefty French ultra-long supply
• Risk/reward for inflation breakevens remains attractive and suggest adding on any setbacks that may be seen next week on lower oil prices expected after this weekend’s OPEC meeting
• Maintain spread tightener expressed via Italy for coming weeks and are more cautious on Portugal
  • Cash flows from Italy and Spain total almost EU80b, while Portugal will only see ~EU0.7b of coupon payments next week
  • 10y BTP/bund spread should remain within a rough range of 100-150bp, closer to the lower end in coming weeks and higher into summer
  • Debate about sovereign risk-weights has the potential to limit the downside to spreads longer-term