BUNDS: Risk Of A Buxl CtD Switch?
Oct-05 07:11
Sell-side names look at Buxl CtD switch risk:
- Citi: A CTD shift to a higher duration Buxl (Aug53s in this case) would mechanically lead to an increase in duration of Buxl contracts and perhaps force long investors to reduce their exposure by entering offsetting short positions. Our calculations show that a ~20bp parallel sell-off across the deliverable basket will result in a CTD switch to Aug53s, though this can quickly change as evidenced in yesterday’s rally.
- Commerzbank: The brutal sell-off in ultra-longs is reviving switch risk for the Dec Buxl contract; a ~25bp yield increase would turn the DBR Aug53 into the cheapest-to-deliver bond (note that the roll vs. the Aug48 has been comparatively stable during the sell-off, and the two bonds trade on virtually equal levels in repo). Accordingly, the UB net basis has spiked since Thursday, but compared to the Dec22 contract (the last time when switch risk was for real), it hardly appears excessive for the current stage of the contract cycle which suggests further upside.
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US TSYS: Looking Lower Early On
Sep-05 07:09
Tsys continue to edge lower through early London trading, with the major benchmarks 2-4bp cheaper as intermediates lead the weakness.
- TY futures move a little further through Friday’s lows, last dealing -0-09+.
- A heavy start for Bunds, as well as confirmation of Japanese PM Kishida seeking a record sized FY24 budget, will be helping the move.
- Technically, the Aug 29 low in the contract (109-28+) presents the next area of support.
- FOMC-dated OIS show terminal policy rate pricing of ~5.425%, with cuts to ~5.00% priced through June ’24. That space is generally a little firmer on the session.
- Factory orders and final durable goods data will cross in NY hours.
EQUITIES: Some buying interest on the Cash open
Sep-05 07:07
- Some buying in futures, VGU3 bought in over 5k on the lower EU Cash open, but the contract has already broken through initial support that was at 4264.00.
- Next support is now at 4225.00.
- In Cash, SX5E sees immediate target at the 4245.60/4236.26 gap.
EQUITIES: EU Cash opening calls
Sep-05 06:57
- Estoxx 50: -0.51%, Dax: -0.43%, CAC: -0.44%, FTSE -0.59%, SMI -0.34%.
- Focus on the cash open, with futures still drifting lower.
