RBC Enter AU/U.S. 10-Year Tightener Via Futures

RBC note “in our 2023 outlook we flagged long AU vs. U.S. 10yr as one of our 5 key trades. Given the AU underperformance of the last few sessions, we follow through on this recommendation and enter March XM futures vs 10-Year UST at +2bp. Our take profit is -50bp which looks ambitious, but we think is where the bottom of the range will move to early next year as the full extent of Fed-RBA divergence becomes better reflected in the back end of curves. Given liquidity is getting more marginal as we approach year-end, this is best thought of as a smaller-sized trade designed to weather some volatility. With that in mind, we use a relatively wide stop of 20bp.”