Mizuho Recommend 5s30s U.S. Tsy Steepener Vs. Long 30-Year JGBS

Tuesday saw Mizuho recommend entering "a 48% DV01 U.S. Tsy 5s30s steepener against 100% long 30Y JGB at -3.5bp (on the current benchmarks: T Sep25, T Aug50, JX68). We initially target 7bp, stopping at -9bp, with 60% risk units (carry: 0.13bp/month, roll: 0.36bp/month)

• The structural rationale for a steeper U.S. rates curve should still be in play beyond the election. As election uncertain subsides, U.S. reflation trades performing remains the most probable outcome.
• 5s30s makes best use of the C&R profile of USTs, while 30Y JGBs can be used to protect the bull-flattening downside, and add exposure to more idiosyncratic factors such as a more dovish BoJ. With momentum building towards higher US yields in the medium/long-term, the lack of mark-to-market potential in USTs should dissuade Japanese buyers until yields are considerably higher.
• We recommend buying 30Y JGB against a 5s30s UST steepener, with a beta-weighting for the prevailing regime. This provides positive carry & roll, plus a weak relationship with USD/JPY, U.S. equities and credit."