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RBC Recommend Adding 10y SOFR-EURIBOR Spread Tightener

STIR
  • RBC enter fresh tactical trade recommendation, adding 10y SOFR-Euribor spread tightener to their portfolio at 146bps to target 125bp, with a stop-loss at 155bps.
  • They see markets now at levels where fading CB divergence narrative has become attractive and think the case for US-EUR spread tightening becomes worthwhile.
  • They specifically highlight the fact that in the euro area, services inflation refuses to decline in earnest. This has likely received less attention than is warranted – in no small part because the ECB seems to downplay this development. If Euro area inflation remains stickier, they think there is room/fuel for the EUR rates markets to join the US led sell-off more fully.

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