Press Release – JP Morgan

Our estimates show annual savings of a mere €0.3bn (or 0.13% of GDP) should Greece access funding from the IMF. Such a decision is purely political given the limited economic upside; stay bullish on front-end Greece vs. Germany, but expect heightened …Global Fixed Income Markets Weekly

Click here for the full Note and disclosures.

Overview Pavan Wadhwa, Christian O’Donnell
Our estimates show annual savings of a mere €0.3bn (or 0.13% of GDP) should Greece access funding from the IMF. Such a decision is purely political given the limited economic upside; stay bullish on front-end Greece vs. Germany, but expect heightened volatility until a resolution is reached. Pushback on FSA proposals for UK liquidity buffers will accentuate gilt demand/supply imbalances; stay in UK steepeners vs. EUR.

Euro Pavan Wadhwa, Fabio Bassi, Gianluca Salford
Keep a bearish bias on duration and stick to 2s/10s flatteners. Unwind short 20Y vs. 10Y and 30Y at a profit. Maintain intra-EMU tighteners focusing on the short-end in Greece, Portugal and 15Y Ireland. Underweight 2Y Belgium vs. Germany (or Austria). Keep 8Y France-Germany wideners as a partial hedge against a widening in peripherals. Hold long Sep10 EONIA and Sep10/Mar11 EONIA and Sep10/Sep11 Euribor steepeners. 1s/5s and 1s/10s bear steepeners are attractive on curve carry, vol carry and RV considerations. Close out of swap spread narrowers and enter Bund Jun10 conditional wideners in a rally. We revise down our mid-year implied vol targets; stay short 3Mx2Y OTM receivers and short 30Y tails vs. 5Y tails.

UK Francis Diamond
Stay short 10Y gilts outright and keep 5s/10s steepeners. Enter tactical 10s/30s flatteners ahead of the budget/gilt financing remit. We expect gilt sales of £180bn in FY10/11. Long-end nominal supply will fall slightly as a proportion of total issuance.

US Terry Belton, Srini Ramaswamy
Stay neutral duration but unwind 2s/5s steepeners and short belly in 2s/5s/30s fly. Position for outperformance of the belly in the 3s/7s/30s fly. We remain neutral on swap spreads, but recommend entering 7s/10s swap spread curve flatteners. Stay bearish on vol via curve straddles.

Japan Makoto Kuroda
Buy futures asset swap. Maintain 20Y JGB ASW as a long term positive carry normalization trade. Take profit on 7s/20s JGB flattener.

Inflation Jorge Garayo, Meera Chandan, Francis Diamond
Underweight French-CPI linkers vs. Euro HICP in the 7Y sector. Favour 15Y HICP swaps. In the UK, keep long ILG 2013 in breakevens and take profit in long ILG 2040 in asset swap into the DMO announcement.

Australia Sally Auld
Look to buy longer duration bonds on the semi-government curve. Position for a flattening of the 3s/10s semi-government curve on an efp basis.

ENDS

Content Sourced from scoop.co.nz
Original url