20160609-法国巴黎银行-GLOBAL_WEEKLY_GLOBAL_RATES_PLUS_43页_4mb

Global Rates Strategy Summary - June 9, 2016

Core Content

This report outlines the current outlook for global interest rate markets, emphasizing the potential for continued outperformance in long-dated bonds, particularly 30-year bonds, due to a combination of low yields, political uncertainty, and central bank policies. It also provides trade recommendations for different regions and asset classes.

Main Views and Key Information

Global Outlook

• Expect a warm summer for 30y bonds: 10y Bunds, Gilts, and JGB yields are at record lows, and investor fears of a sell-off have not materialized.
• Bull flattening in the eurozone and US: The eurozone and the US are next in line for significant bull flattening, driven by ECB's PSPP and weak economic conditions.
• Asia's buying flows: Strong demand from Asian investors for US long-term bonds is expected to continue, supporting lower yields.

Eurozone

• Risk-off mood supports core markets: Political uncertainty in the UK and Spain, along with supportive supply/demand conditions in Germany, are expected to keep 10y Bund yields low.
• 10y Bund yield likely to fall below zero: The yield has already reached a new low of 0.05% and is expected to fall further.
• Key trades:
  • Long 2y/10y OIS receiver (target at 50bp, currently at 61.7bp).
  • Keep EUR 10y/20y/30y swap fly receiver.
  • Long 10y/30y conditional flatteners through 1y receiver swaptions.
• Seasonal factors: Bunds are entering a seasonal bullish phase, historically rallying 14bp from June to July.

US

• No catalyst for a meaningful sell-off: Weak NFP data, LMCI trends, and low yields abroad suggest rates will remain low.
• Bull flattening bias: The US swap curve is showing a bull flattening bias, with the first Eigen vector explaining most of the market movement.
• Key trades:
  • Long 10y Treasury (target at 1.50%, stop at 1.80%).
  • Buy T 1 12/31/17 mm ASW and sell T 1.125 06/15/18 mm ASW.
  • Receive USD 2y2y 1m Libor vs OIS basis.
  • Long 6m10y 1.70%-1.90%-2.10% payer ladder.
  • Buy 9m10y 1.75% vs 1.40% receiver spread.
  • Sell synthetic 9m2y3y atm - 48bp receiver.
  • Buy 1y forward 2s5s10s receiver butterfly.
  • USD 2s5s steepener vs EUR 2s5s flattener.
• Duration and curve: The 10y Treasury is expected to outperform, and the curve is flattening.

Japan

• BoJ unlikely to ease next week: A reasonable chance of easing in July is expected.
• Key trades:
  • Receive 1y1y if it cheapens.
  • Receive 1y fwd 2s5s10s.
  • 5s10s steepener.
• Yield differential: The spread between US 30y bonds and JGBs is at record levels, indicating strong demand for US bonds.

UK

• Political uncertainty: The UK's EU referendum and Spain's elections are likely to support core markets.
• Key trades:
  • Keep 2y/5y/10y swap fly recommendation (targeting February's low at -30bp).
  • Long 5/10/30y UKTi breakeven fly.

Australia

• RBA likely to cut rates further: The decision to hold rates was expected, but lack of forward guidance disappointed the market.
• Key trades:
  • Scale in to receive 3y/1y1 above 2.0%.
  • Pay Oct OIS vs receive Nov OIS.
  • Keep July-Aug OIS.
  • Keep 3y/5y/10y swap fly (receive 5y).
• 10y AU-US spread: Expected to narrow further, with a stop out of short 10y swap spreads.

Inflation Outlook

• Bulls are back in town: Weak NFP data, political uncertainty, and ECB's QE programme support a bullish stance on global inflation assets.
• Inflation breakevens: Expected to widen further, especially on the 5y area, with a decline in real yields.

Market Dynamics

• Swap curve analysis: The US swap curve is showing a bull flattening bias, with the first Eigen vector explaining most of the movement.
• Speculator positions: Asset managers and leveraged funds have reduced their opposing positions on US Treasury futures, with asset managers decreasing their net long duration by 45%.
• Central bank influence: ECB's PSPP and BoJ's QE are significant factors in the market's behavior.

Key Tables and Charts

• Table of key views and trades: Outlines recommended positions across different regions and asset classes.
• Chart 1: Bunds entering a seasonal bullish phase.
• Chart 2: Flattening is led by the long end.
• Chart 3: US bonds/long-dated JGB spreads back to record levels.
• Chart 4: Dealers taking a back seat at auctions.
• Chart 5: Net EGB supply estimate for H2 2016.
• Chart 6: 10y Treasury may be overbought.
• Chart 7: Market movement explained by the first Eigen vector.
• Chart 8: Curve component less relevant than during QE.
• Chart 9: US Treasury futures market positions.
• Chart 10: Net short duration positions increased.

Upcoming Ratings and Reviews

• 10/6: France (Fitch), Italy (Moody's)
• 17/6: Slovenia (S&P), Spain (Moody's)
• 24/6: Germany (Moody's), Austria (Moody's), Belgium (Moody's), Greece (Moody's)
• 1/7: Belgium (Fitch)
• 8/7: Germany (S&P), Netherlands (Moody's)

This publication is classified as non-independent research.