UST-Bund spreads continue to rocket northwards (See Image) helped along of course by the improving US data as well as the start of the ECB's QE. Even at current levels, wider UST-Bund spreads remain a good way to express…
UST-Bund spreads continue to rocket northwards (See Image) helped along of course by the improving US data as well as the start of the ECB's QE.
Even at current levels, wider UST-Bund spreads remain a good way to express bearish duration views, led by the dollar leg.
Performance in euros was led by less Bunds and OATs in the 15-30-year bucket. Swap spreads tightened by some 5bp on the day and are making new record tights against swaps.
Societe Generale notes in a report on Tuesday:
We still believe that the illiquid and hard-to-buy long-end bonds remain the best candidates to profitfrom the ECB's QE (even with the likes of the DBR 5.5 01/31 now at 60bp in yield terms, or -40bp in swap spread). swaps.
That strong performance of the long end was all the more impressive given that buying by the central banks precisely was not. It looks like the ECB may still need to oil its gearbox before revving up.
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