J.P.Morgan Issues Long Bobl Vs. U.S. Tsy Recommendation

Late on Friday saw J.P.Morgan issue a recommendation to “re-enter long 5-Year German vs. U.S. paper as a proxy to our near-term bullish bias and also a protection against tail-risk of further escalation from Russia. We have a near-term bullish bias on German duration both outright and also cross-market. Over the coming week we would expect market to price out part of the tightening priced in Euro rates on the back of sluggish activity data, whereas in U.S., the impact on growth from the war is quite limited. Also, we believe that Euro rates would likely outperform U.S. rates in the case of further Russia-Ukraine escalation due to close proximity and also more direct and imminent macro and monetary policy impact. On the other hand, on a risk-on sell-off, we would expect the market to add more tightening expectations in both Euro and U.S. rates, and would expect a modest U.S.-Germany spread tightening in such further bearish moves.”

• As such, they recommended opening a long Bobl Apr ‘27 vs. short U.S. Feb ‘27 Tsy position at a spread of 208.0bp. The position has 3-month carry of -5.0bp and 3-month slide of 2.0bp.