European Rates: The beginning of the end – TDS

The ECB’s sustained presence should prevent a significant increase in yields in the euro area, according to analysts at TDS.

Key Quotes

“We forecast 10yr bund yields to rise gradually to 0.8% by the end of 2018. Meanwhile, the current state of forward guidance suggests a steeper front-end, which we have expressed via 4y1y vs 1y1y Eonia steepeners.” 

“We are biased towards bund flatteners. However, we think that the peripheral curve could steepen as more duration returns into the hands of private investors. We don’t expect political risk to be particularly high next year.”  

“With the Bundesbank buying fewer front-end bunds, we expect scarcity premium to be less pronounced. Thus we recommend 5yr bund asset swap tighteners (cash underperforming swaps). In cross market, we favour being long 3y1y US vs EU OIS and short 5y5y UK vs 5y5y EU.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.