De-stressing

- Overview: "The results of the bank stress tests may be insufficient to quell fears about the European banking system but markets breathed a sigh of relief and reacted strongly. If bank stocks and CDS levels continue to trade well, that should give more confidence to the sector than any stress test ever could."
- US Rates Strategy: "We examine the Fed’s options to provide further monetary stimulus should growth disappoint and the likely effect on the curve: lowering interest on reserves primarily affects the 2yr point but a commitment to keep rates unchanged for a specified period should have the largest curve effect."
- Euro Rates Strategy: "EMU spreads are tightening in a more benign risk environment. However, we advise being selective with non-core longs as some peripheral markets already look extended on fundamentals. Cross market box trades offer some interesting alternatives to outright spread exposures."
- Sterling Rates Strategy: "The long-end of the gilt curve looks too steep. We suggest looking to scale into 10s-30s gilt flatteners post this week’s supply pressures. Alternatively, the 10s-30s gilt-Bund box has reached even more attractive entry levels week."
- Global Inflation Strategy: "The 30yr IL gilt syndication met with strong demand. We see value in 30yr UK real yields versus 30yr TIPS. Euro break-evens have bounced strongly from their lows, but we remain neutral. BTPei41 offers value."
- APAC Rates Strategy: "We like buying 10yr JGBs on dips. Large depreciation of AUDJPY may trigger 30y receiving. We recommend hedging 10yr JGB longs with 10s30s flatteners in swaps."
- Global Flow Analysis: "Strong and increasing demand for European government bonds and duration. Any worries about higher yields seem to be absent in both Europe and the US."
- August European Supply Outlook: "The strong support for Europe from the excess of coupons and redemptions over issuance in July disappears in August when supply is very light. We expect downward pressure on Italian yields and upward pressure on German yields from changes in their respective NCRs."
- Relative Value: "We suggest switches on the German, French, and Dutch curves."
Citigroup International Interest Rate Strategist 20100729