Citi’s EUR/UK Rates Overview

Citi’s rates strategy team notes that they “are not inclined to adjust our year-end 10yr Bund forecast of 2.15%, leaving us strategically neutral, expecting to trade a range in 2024 not a trend.”

• They go on to highlight “tactically, we lean mildly bearish, with premium helping 5y5y HICP find resistance and ECB rate cut pricing looking overdone.”
• “Our Bund fair value estimate is yet to provide a decisive sell signal, however.”
• “Portability of steepeners in the belly of the € swap curve continues to be challenging, and we prefer to pay the long end instead. We remain paid €10s30s 1yr forward.”
• “In € swap spreads, the convergence between term and short dated spreads is set to continue and possibly accelerate.”
• “In EGBs, we turn tactically mildly bearish on EGB spreads given risks from further weakness in FI/risk assets amid the return of supply.”
• “Entry levels still look good on our proxy BTP widener and 20yr PGB-OAT tightener.”
• “In gilts, the early year sell-off likely has further to run to back above 4% for 10s.”
• “We stick with SONIA Z4/Z5 flatteners, 10yr gilt-Bund wideners and selling 10yr gilt ASW.”
• “Longer-term, we forecast 10s30s gilts to 100bp.”