HALISTER1: Upward Pressure on EUR Short-End to Lead Curve Flattening: BNP

Upward Pressure on EUR Short-End to Lead Curve Flattening: BNP

(Bloomberg) -- Recent market and economic conditions suggest a prolonged status quo on ECB policy rates, leaving short-term (2y) rates exposed to upward pressure, BNP Paribas strategists including Patrick Jacq write in client note.
  • Maintain 2s10s OIS flattener
  • Receive the 4y OIS/BOR spread 1y fwd (receive the 4y swap (vs 6m) 1y fwd and pay the 4y OIS 1y forward); entry 29bp, target 22bp, stop at 33bp, carry 0.4bp per month
  • ECB’s upcoming TLTRO II program may also weigh on the 2-4y OIS area and expect demand at these operations to be very large, although more in gross than in net terms
  • This won’t fuel a decline in eonia rates but should support receiving interest in the 4y swap (vs Euribor) area
  • Expect 10Y recent trading range to hold near term before yields resume their decline in the summer
  • Risk of flattening pressure developing in coming weeks with the short end of the curve most exposed to upward pressure (repricing of ECB rate policy)
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Patrick Jacq (BNP Paribas SA)

To de-activate this alert, click here

UUID: 7947283