Bank of America Global Research goes long US vs EU real yields long to protect against crowded positioning and sticky US inflation.
The
US CPI print led to a sharp rally in rate markets: one 25bp rate hike
was taken out of the front-end, 10y real yields rallied some 25bp too,
with a 35bp rally in 1y breakevens. Risk assets spiked and the dollar declined…We
expect USTs to outperform, in line with consensus. Concerns about
positioning, and on-going uncertainty surrounding the inflation outlook,
lead us to favour expressions in real yields,” BofA notes.
“We recommend a real yield long in TII Feb 2046 vs DBRei Apr 2046 at 209bp, target 150bp, stop-loss 240bp. The risk to the trade is the market questioning the growth outlook in Europe much more meaningfully than in the US,” BofA adds.
For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.