HALISTER1: Take Profit on G-4 Bonds; Go Long 2038 OAT vs 2037 Bunds: SG

Take Profit on G-4 Bonds; Go Long 2038 OAT vs 2037 Bunds: SG

(Bloomberg) -- Recommend taking profit on small long G-4 duration for now, looking to reset at better levels; bond rally is set to pause as risk assets temporarily consolidate, SocGen analysts including Vincent Chaigneau write in note.
  • Bond rally unlikely to extend before G-20 meeting on Feb. 26-27 given oil-price rebound, dovish central banks (positive for risk sentiment)
  • Long-end supply has weighed on the back-end of OAT curve; substantial concession should retrace, further ECB easing should encourage continued spread compression
    • Recommend long OAT 2038 vs bund 2037 at 72bps in ASW; target 60bps, stop 80bps
    • Recommend long OAT 2038 vs OAT 2045s at 15bps in ASW; target 18bps, stop 13bps
  • Recent selloff in bank stocks amid concern about exposure to EM credit has resulted in widening of FRA/OIS bases
    • Recommend FRA/Eonia basis IMM2-IMM6 steepener at 0.3bps as a hedge against further weakening in banks stocks, EM credit; trade may also benefit from a multi-tier ECB cut
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Vincent Chaigneau (Societe Generale SA)

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