USD Receiver Skew in Belly May Appeal on Further Fed Squeeze
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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UUID: 7947283
(Bloomberg) -- Zero-cost USD rates receiver spreads may appeal to investors looking to hedge the potential of further reduction in odds of Fed hikes but not an outright recession, Bloomberg strategist Tanvir Sandhu writes.
- A 1x2 USD 1y5y receiver spread struck at 1.80% and 2 times notional at 1.50% is close to zero cost; see example structure here priced in SWPM
- A rally in the belly that takes this structure to the breakeven rate would be mostly likely in a recessionary environment/cuts
- U.S. OIS pricing shows cumulative 40% probability of a 25bp Fed rate increase in December vs 50% prior to inflation print (core missed for fourth consecutive month) and miss in retail sales data, while June 2018 shows a probability of 90%
- NOTE: Odds of lower fed terminal rate rising in slow-inflation world, see more here
- NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
To de-activate this alert, click here
To modify this alert, click here
UUID: 7947283