VIEW: HSBC think "the regime of bull...........>

BTPS: VIEW: HSBC think "the regime of bull steepening may be at an end: the vol.

of the entire curve has fallen, particularly at the shorter maturities. This

implies that the 2-10-year slope should start to bull flatten if vol. continues

to fall. Alternatively, if there is a severe enough shock to disrupt this

normalisation trend, the curve should bear flatten as the short end becomes more

vol. This suggests that a 2-10-year flattener could perform in a range of

scenarios. We think the 10-year has lagged the move, and there is room for it to

catch up. The structural factors of PEPP & the moves towards fiscal support on

an EU-wide level, should all tend to compress spreads. Economic recovery could

act as a tailwind, but experience has shown that the effect of ECB stimulus

tends to outweigh even severe economic downturns. The extreme -ve carry of this

flattener made it unpalatable to most investors before now, even as the curve

re-steepened. The flattener trade still carries negatively, but with a more

manageable 6bp/3m it should easily be overshadowed by the potential for falling

yield at the 10-year point." They look to enter a short BTPS 1% 07/22-long BTPS

0.95% 8/30 spread at 126bp today, targeting 106bp with a stop at 136bp.