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EGBS: Citi Recommend Short 10-Year OATs Vs. Bunds & BTPs On Fly

EGBS
BulletEurozoneFixed Income BulletsMarkets

Citi recommend selling 10-Year OATs on a fly against Bunds & BTPs.

  • They note that “survival of the Bayrou government, strong reception of supply and domestic real money demand on high outright yields” has supported OATs in recent weeks.
  • OATs now look rich on their value model, which, when coupled with the slowing of OAT tightening and medium-term economic, fiscal, political and ratings risks, leads to the short OAT on the fly recommendation.
  • They also suggest that “in terms of demand from domestic real money, the 40bp reduction in 10-Year OAT yields since mid-January might prompt that cohort to wait for better entry levels.”
  • On the BTP leg, they note that “despite an optically tight spread to Bunds, BTPs have underperformed vs other correlated assets and currently look the cheapest among EGBs on our fair value model…Overall, the bottom line for supply remains that declining pressure after January front-loading should be supportive for the periphery.”
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Citi recommend selling 10-Year OATs on a fly against Bunds & BTPs.

  • They note that “survival of the Bayrou government, strong reception of supply and domestic real money demand on high outright yields” has supported OATs in recent weeks.
  • OATs now look rich on their value model, which, when coupled with the slowing of OAT tightening and medium-term economic, fiscal, political and ratings risks, leads to the short OAT on the fly recommendation.
  • They also suggest that “in terms of demand from domestic real money, the 40bp reduction in 10-Year OAT yields since mid-January might prompt that cohort to wait for better entry levels.”
  • On the BTP leg, they note that “despite an optically tight spread to Bunds, BTPs have underperformed vs other correlated assets and currently look the cheapest among EGBs on our fair value model…Overall, the bottom line for supply remains that declining pressure after January front-loading should be supportive for the periphery.”