RBC Looking To Enter Steepener Expressions

Late on Monday RBC noted that they "have stayed well away from the belly for much of this year on the view that markets had scope to bring forward the expected timing of central bank hikes, which would cause persistent underperformance in mid-curve relative to the longer end. While this thesis has proved broadly accurate, we've also (more unexpectedly to us) seen substantial bull flattening causing Aussie 5-10s to roughly halve in steepness since March."

• "We think the long end should head steeper from here over the medium term, and 5-10s in Australia possibly has more scope to re-steepen than some other countries given it's likely to be a fairly drawn-out path toward RBA hikes. After reaching ~16bp through U.S. Treasuries, 10-Year ACGBs are also looking tactically a touch rich on a global RV basis, with the same dynamic filtering through to cross-market swap comparisons."
• "As a result, we look to take advantage of belly cheapness by receiving 3-month forward AU 2-5-10s if the swap fly reaches 5bp. Our target is -20bp and our stop 12bp; roll-down is about 1.4bp/3mths. We suspect that at this juncture, the greater volatility will come from the 5-10s side of the trade rather than 2-5s, but we are comfortable with this, i.e., positioning for higher global 10-Year yields and a reasonably contained Aussie front end."
• "In physicals, this could be via an ACGB fly consisting of Nov '24/Apr '27/Jun '31s, with the Apr '27s looking cheap on the curve. A 3-5-10s bond futures expression would also work."