Global Fixed Income Markets Weekly: Focus on carry across curves, swap spreads and vol

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Global Fixed Income Markets Weekly: Focus on carry across curves, swap spreads and vol

: We maintain bias to trade German duration tactically from long side and JPMorgan Securities Japan Co., Ltd.

look to add OW 10Y Germany on any selloff back to ~3.10%. We stick with

our cautious intra-EMU/€-SSA stance. Hold long 30Y EU vs. swap. Keep short

10Y Italy vs. France as carry-efficient broad risk-off proxy and UW 10Y

Belgium vs. France/Germany in 50:50 flies as a Middle-East re-escalation tail-

risk hedge. We expect carry to be a dominant theme over the coming weeks. To

this effect, we recommend paying 1Yx1Y in 1Y/1Yx1Y/2Yx1Y 50:50 €STR

fly which trades proxy short duration but offers attractive 8bp of 3M carry and

currently appears too rich. We also recommend entering Bund/Buxl swap

spread curve and holding shorts in 3Mx(3Yx1Y) unhedged straddles on carry

considerations with supportive underlying fundamentals. We take profit in

long Dec26 SOFR puts versus Euribor after the sharp repricing post hawkish

Fed. Elsewhere, we close receiving 3Mx(1Yx1Y) receiver fly and hold Dec26/

Dec28 and fronts/greens conditional bear flattener. We have a steepening bias

on 10s/30s curve and highlight that 2Yx2Y/10Yx10Y is an attractive

alternative. Stay neutral on Schatz swap spread and widening bias on Bund

spreads. We also hold on to volatility curve normalization theme and keep

2s/10s vol curve and 3Mx5Y/1Yx5Y expiry curve steepeners.

• UK: Keep tactically paid Sep26 MPC OIS. Stay short Jun27 3M SONIA

futures vs. Jun27 Euribor. Pay belly of 1Y/1Yx1Y/2Yx1Y as a carry trade

Contents

which also trades proxy short 1Yx1Y yields. Stay neutral duration, expect 10Y

gilt yield to range trade. Keep tactical flattening bias on 10s/30s gilt curve. Overview 3

Euro Cash 13