TD Takes Profit On 2s10s Flattener

TD is taking profit on its 2s10s Bund flatteners recommendation entered on May 11 at 50bp in its Global Rates Model Portfolio, exiting at 45bp. They initiated the flattener due to their belief that market pricing of ECB's exit from accommodative policy was "rather overdone" - a view that had been echoed in recent days by ECB speakers (Villeroy yesterday, Panetta today).

• While their target had been 35bp, they note 10Y Bunds have rallied 10+bp in the last couple of sessions, and prefer expressing their view via long SSA/EGBs vs Bunds, as well as long 10Y Bunds vs USTs.
• They also favour 10s30s flattening as "this part of the curve still looks steep when compared to the flattening seen in 10s30s Gilt/UST curve."