Press Release – JP Morgan

We revisit cross market trades recommended in the 2010 Outlook. With EUR rates at the bottom end of their recent trading range, close long positions in 10Y EUR vs. UK and EUR vs. US. However, keep 2s/10s GBP steepeners vs. EUR given fiscal concerns …Global Fixed Income Markets Weekly

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Overview Pavan Wadhwa, Christian O’Donnell
We revisit cross market trades recommended in the 2010 Outlook. With EUR rates at the bottom end of their recent trading range, close long positions in 10Y EUR vs. UK and EUR vs. US. However, keep 2s/10s GBP steepeners vs. EUR given fiscal concerns and the possibility of a hung parliament in the UK. Keep long in EUR vs. NZD in 10Y swaps in anticipation of RBNZ rate hikes.

Euro Pavan Wadhwa, Fabio Bassi, Gianluca Salford
Stay neutral on duration, but with a bias towards being short. Keep 2s/10s flatteners. 20Y bonds are now expensive; sell 15Y and 20Y bonds vs. 10Y and 30Y. Remain positioned for intra-EMU spread compression. Go long 5Y Portugal and stay overweight 15Y Ireland and short end Greece vs Germany. Stay long Sep10 EONIA and in Sep10/Mar11 EONIA steepeners. Initiate Sep10/Sep11 Euribor steepeners and 1s/5s bear steepeners. Stay positioned for swap spread narrowing in the belly of the curve. Remain short gamma on 2Y tails. Sell Sep10 Short Sterling straddles.

UK Francis Diamond
Stay short GBP outright and vs. AUD in 10Y. Keep 5s/10s steepeners; we believe the 3.5pt fall in conservative poll lead over the past 2M has put about 10bp of steepening pressure on the 2s/10s gilt curve. Take profit in long belly 10s/30s/50s gilt fly. The 2s/5s/10s swap fly looks rich given the slope of the Short Sterling curve. Go long the belly of the gilt Sep19s/Dec27s/Jun32s cash-and-duration neutral fly.

US Terry Belton, Srini Ramaswamy
Stay neutral duration and keep 2s/5s steepeners. Stay short belly in 2s/5s/30s fly. Stay neutral on swap spreads and remain bearish on vol. Keep longs in 3Mx2Y vs. 3Mx10Y.

Japan Makoto Kuroda
Stay neutral duration, but keep bearish exposure via curve flatteners. Stay in 7s/20s flatteners and maintain 20Y JGB ASW.

Inflation Jorge Garayo, Meera Chandan, Francis Diamond
Go tactically neutral and take profits on long TIPS breakeven trade in the 10Y sector. In the UK buy ILG 2040 in asset swap and keep longs in ILG 2013 breakevens. Stay broadly neutral in Euro breakevens, favour HICP swaps in the 10-15Y sector vs. 30Y.

Australia Sally Auld
Turn neutral on the 3-month to 1-year part of the curve. 12-month OIS at 4.80% offers good risk/reward. The NZD 5y5y swap rate will eventually trade below the AUD 5y5y swap rate, in our view.
ENDS

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