Bellys Underperformance -IFR

BOSTON, Sept 12 (IFR) – Central banks easing are not what the once were as much of the European rates complex has given up its earlier ECB inspired gains with only the higher yielding peripheral markets maintaining decent gains. The reversals appear tied to the notion that ECB President Draghi said that the bank has done all that it could and that it is now up to the fiscal authorities to provide the needed stimulus to the economy.

This would take the form of various spending schemes with Green energy projects and Tech initiatives current top considerations. These presumably would be funded through the issuance of long-term debt and a reason why the ECB inspired rallies fizzled out.

The same is the case in the treasury complex where the market is being led lower by the directional belly of the curve. The move is being accelerated by the news that the Trump administration is considering some sort of a trade truce with China (delay tariffs). Should the belly continue to underperform it would be a portent for a higher overall structure of rates and something to keep an eye on. We exited our long bund/treasury 30-year spread for a 1 bps loss. We will look to add to our 30-year auction set-up short (2.18%) at 2.19% if hit. We will also look to exit our 10s/30s steepener in the bond auction.

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