- Eurozone rates markets are still in safe-haven mode, with Bunds bull-steepening, spreads vs. Bunds widening and break-evens declining. Given the politics-driven market environment, today’s meeting between German Chancellor Merkel and French President Sarkozy will be in the spotlight.
- Relief for Tier 2 government bonds from the supply side starts as the next bus stop in the peripheral supply arena is Italy only in the week after next. However, given the highly elevated political uncertainty we stick to our view to wait with Tier 2-core spread tightening positions.
- After H1 Eurozone linker supply has been completed by France, the lack of near-term issuance may help break-evens bottoming out. However, similar to EMU spreads, the ‘Greek elephant’ needs to leave the room first.
- We recommend a neutral positioning in outright Bunds, EMU spreads and € break-evens heading into the weekend.
- In derivatives we recommend buying € 6m10y payers vs. selling € 6m30y payers in the context of the Dutch pension fund reform’s and look how to exploit the rich levels of ultra-long US$ tenors vs. their £ pendants.
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http://www.easyforexnews.net/wp-content/uploads/2011/06/ES_0617e.pdf
Commerzbank Corporates & Markets
Interest Rate Strategy