Mizuho Like Tactical 10s30s Flatteners

Mizuho note their "strategic recommendation of U.S. curve steepening is currently looking crowded. The Biden clean sweep trade has become a common narrative, and looks close to fully priced given current opinion polling. Yet there are several triggers that could see the "blue wave" priced more realistically. This week's Tsy supply has likely kept the curve artificially steep. We look to capture post-supply flattening performance before re-engaging with bear-steepeners. We add a tactical 10s30s flattener to our model portfolio in the current benchmarks, 0.625% Aug30 and 1.375% Aug50. From 79.5bp we target 72bp, stopping at 85bp, in 100% risk units. Carry and roll will be negative, but pretty minimal over the short horizon we're looking at (carry: -0.1bp/m, roll: -0.4bp/m). Flattening in 10s30s is likely to have a strong correlation with risk-off trading in other markets. Investors should be able to find some asymmetry in buying the dip in rates."