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GoCs Outperform Ahead of GDP, RBC Recommends Long 10Y

  • GoCs slightly extend the decent shift richer at the open, with 2-10Y benchmark yields all within +/-0.5bps of -5bps on the day and only the 30s lagging with -4bps.
  • GoCs modestly outperform Treasuries across the curve, most notably at the front end with 2YY Tsys -2.7bps.
  • RBC recommended long 10Y GoCs, with an entry 3.25%, target 2.75% and stop 3.51%, with a 2-3 month trading horizon. Rationale: "Yields (5s-30s) are near the 90th percentile of the 1yr range. It has paid to fade the extreme levels".
  • "10y tenor chosen over (i) 2s to protect against BoC being re-priced higher, (ii) preferred to 5s given that tenor remains expensive on an RV basis (ie. fly very depressed), and (iii) superior to 30s as 10s30s tends to steepen when 10s move lower".

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