|JGB vs Bund sovereign curve|
This chart from Martin is one of many that show optimism in Europe:
#EUR: how about 3% EMU GDP growth? What a difference a month makes in sentiment, e.g. https://t.co/T6tYNnL2qT pic.twitter.com/WewvAnX08r
— Martin Enlund (@enlundm) March 9, 2015
It is of course worthy of note that the wave of disinflation/deflation has been exacerbated by commodity prices, in particular oil price declines, however the basing factor will mean that the impact will disappear from the headline figures over time. And whilst we may not see massive inflation, we may see a definitive pickup.
This might have quite the impact on Bund yields (and other zero-bound rates), primarily those in CEE.
|HUF / PLN / EUR 5 year swaps|
What I mean by this is that if large global flows are going to be looking for yield, the clearly you'd look straight to USTs. One would much rather own a 10y UST at 2.2%, than polish rates at 2.1% as per above for example, and these flows may act to re-converge all DM rates.
While at the same time the idea that bund yields (and other zero-bound 10s) could actually pick up.. Thus when we see the 10 year USD/EUR swap rate at 160+ bps I think that the upside is rather limited and we are approaching the ultimate highs.. its possible that Fed hikes and upside data surprise may shock this higher, but I don't think we trade too much higher, and considering carry and roll would not hate Long USTs vs short Bunds here.
|USD-EUR 10y swap|
Looking to FX now, the EUR has been really hit, currently tradig firmly under 1.10, with the DXY storming towards 100. On a technical picture there isn't much support until this channel as per below, around 1.04/05
But I think EURAUD could pose a decent short term opportunity at current levels, trading the range of 1.40/1.50
|EURAUD vs 5y spread|
A potential double bottom here offers good value to get in and play this range, Both via a spot trade for a short term move, and a 1x2 call spread (3 month, strikes ATMF and 1.45)
|EURAUD 1x2 call spread|
On to the GBP a little...
I posted this trade on twitter last week:
and a 1x2 put spread looks good (1.54 and 2x at 1.50), receive premium and protect down to 1.45 handle pic.twitter.com/4opphN7GLn
— Jere Wilkinson-Smith (@JeremyWS) March 2, 2015
Doing well thus far, with cable dropping towards 1.51, but obviously with this structure my delta flips from short to long if we drop much further so I need to be careful, but its a decent start and I don't think that we see the market getting too ahead of itself into the General election.
|GBP vol premium vs Global|
Lastly, I am going skiing next week (yay!) and its a fab time to buy EURs... almost 1.40!