RBC Go Long ACGB Apr-33s On Switch

RBC note that “whether viewed in terms of forward yield, z-spread or zero-coupon yield, ACGB Apr-33s now look to be trading cheap relative to other bonds in the 10-Year basket, and look to be one of the cheapest bonds on the curve.”

• “With the bond now offering a little under a basis point extra of 3-month carry and roll (primarily from the roll component) relative to other bonds in the basket, we anticipate that the bond is likely to see investor demand at these levels, and recommend positioning for its underperformance to revert”
• “We opt to express this via going long the Apr-33s on switch vs the Nov-32s, entering the trade at 0.25bp, with a target of -2bp, and a stop loss at 1.25bp.”
• “An alternative way of expressing the trade would be to go long the bond on Nov-32/Apr-33/Nov-33 fly. However, we are mindful that this month’s roll will see the Nov- 33s rolling into the 10-Year futures basket.”