November 15, 2023 12:23 GMT
JPM See Fiscal Pressures Weighing on Bonds, But Little Risk of Demand Evaporating
On Israeli markets, JPM write that they expect:
- Fiscal pressures to weigh on bonds, but they doubt demand is at risk of evaporating. They see the bar for BoI bond buying as high. They expect elevated local bond issuance in the coming months, with the November supply plan showing one of the largest monthly gross bond issuances since 2006.
As such, they recommend the following trades:
- Enter 2s10s ILS steepeners (entry at 39bps, targeting 90bps) as the outlook for steeper US curves and more chances of deeper BoI cuts being priced should also support the trade.
- Enter ILGOV ASW spread steepeners at 130bps, targeting 170bps. With bonds cheap in outright yield terms and core rates supportive, they expect ILGOV underperformance primarily in RV terms to swaps.
- Enter 13-May-24 EUR/ILS 1x1.5 put spreads. They see the ILS as 2 standard deviations cheap, even after the recent rally. A bullish FX backdrop can help ILS curves bull steepen
Keep reading...Show less