Adjusting to the new regime

- Overview: "Additional Fed easing measures are likely to be required to tighten the UST-Bund spread further."
- "Scope for significant yield curve steepening may be limited by recent rises in Libor rates."
- US Rates: "With yields significantly below our fair value levels we look at ways to gain exposure to an upward correction; 2s10s steepeners in UST remain correlated to a short duration trade but carry better than outright shorts."
- Euro Rates Strategy: "We recommend taking off short peripheral and fundamental-based spread positions in the current environment of positive news, buoyant mood, and supportive technical factors. There are, however, some remaining relative value opportunities which we highlight."
- Sterling Rates Strategy: "Recent bull flattening of the 2s-10s gilt curve is consistent with anchored short rates, declining inflation and supply expectations and the ongoing grab for yield. We see both 2s-10s and 10s-30s as being close to fair value. However, going forward we expect to see the longend outperform. This should reflect in higher levels of yield curvature."
- Global Inflation Strategy: "The combination of positive cashflows and a large month-end extension should bring much needed relief to euro break-evens in the week ahead. UK real yields are under pressure ahead of supply."
- Index-linked Index Projections: "We project a duration increase of 0.43 in the EUR ILSI at the end of July. There have only been three bigger monthly increases in the last three years."
- APAC Rates: "In Japan, we like 2yr forward 5yr/15yr – 5yr/20yr curve flatteners in swaps or in conditional space."
- "In Australia/New Zealand we find little value in receive AUD versus pay NZD trades, unless the RBNZ hikes by more than 150bps relative to the RBA."
- End-July EGBI projections: "We expect only a small duration increase in the EGBI at the end of July. Projected index changes point to support for Germany, Spain, Italy and France."
Citigroup International Interest Rate Strategist 20100722

No comments:

Post a Comment