Barclays writes "the JGB 5s7s10s butterfly.....>

JGBS: Barclays writes "the JGB 5s7s10s butterfly spread has widened gradually

since the start of the year, but the pace of this widening has accelerated, even

in comparison with the rise in yields, over the past several sessions. Although

the 7y sector offers relatively little carry, there are significant advantages

to leveraging this cheapened sector in terms of bond portfolio management.

Holding the 20y sector as a core long position entails a strong flattening bias.

Combining it with a long position in the 7y sector offers the advantage of being

able to adjust risk exposure to changes in yield level and slope for a bond

portfolio as a whole. Although the correction in the richness of the 7y sector

could continue if the current rise in overseas yields puts upward pressure on

JGB yields, we find it difficult to see 7y yields returning to levels seen prior

to last October, suggesting the 5s7s10s butterfly spread is also unlikely to

return to levels seen at that time."