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/SWAPS: Citi Still Like Long Buxl Swap Spreads

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Citi note that “despite this week’s heavy supply of EGB paper, the repo market has shown no signs of indigestion - with the cost of financing core, semi-core and peripheral collateral little changed.”

  • “Likewise, term spreads have re-priced only marginally tighter relative to their respective short-dated cost of financing.”
  • “Zooming in on German bonds, 10s remain the richest relative to repo, with 30s being the cheapest.”
  • “We have been recommending fading the relative flatness of the 10s30s swap spread box via a long position in Buxl vs 6 for a few weeks now - and while the box has reduced the misalignment to the fair value implied by the level of implied vol by 3bp since last Thursday, it still looks some 9bp flat (as of yesterday’s close).”
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Citi note that “despite this week’s heavy supply of EGB paper, the repo market has shown no signs of indigestion - with the cost of financing core, semi-core and peripheral collateral little changed.”

  • “Likewise, term spreads have re-priced only marginally tighter relative to their respective short-dated cost of financing.”
  • “Zooming in on German bonds, 10s remain the richest relative to repo, with 30s being the cheapest.”
  • “We have been recommending fading the relative flatness of the 10s30s swap spread box via a long position in Buxl vs 6 for a few weeks now - and while the box has reduced the misalignment to the fair value implied by the level of implied vol by 3bp since last Thursday, it still looks some 9bp flat (as of yesterday’s close).”