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SocGen Recommends Tapering Trade in Long-Dated French Bonds
2021-05-07 08:45:49.355 GMT

By John Ainger
(Bloomberg) — Societe Generale are recommending investors
prepare for a flattening of the French yield curve at the very
long end to prepare for the ECB tapering its bond-buying
program, with a pre-announcement expected as soon as the summer.
* Strategists recommend a flattener in the 30- to 50-year
segment of the yield curve because the ECB only buys bonds out
to a maturity of three decades, meaning that those should sell
off relative to their half-century counterparts
** In addition, “higher rates volatility on the back of taper
talk uncertainties increases the value of convexity and should
also tend to flatten 30-50y spreads, if not outright, then at
least in relative terms,” write strategists led by Adam Kurpiel
* SocGen says the conclusion of the ECB’s strategy review in the
fall will likely open the door to an announcment of tapering,
though a pre-announcement could come in some way during the
summer — comparable to previous rounds
* “The recent focus from various ECB members on more standard
policy tools echoes Draghi’s September 2016 comments ahead of a
more formal pre-announcement of the first round of QE tapering
in October 2016”
* The risk to the trade is that the French curve stopped
reacting to tapering news during the last round in 2018, while
French politics could also prove a focus, though that may also
benefit the trade, SocGen says
* NOTE: ECB’s Kazaks Says June Decision to Slow Bond-Buying
Possible

To contact the reporter on this story:
John Ainger in Brussels at jainger@bloomberg.net
To contact the editors responsible for this story:
Kristine Aquino at kaquino1@bloomberg.net
Lynn Thomasson

To view this story in Bloomberg click here:
https://blinks.bloomberg.com/news/stories/QSQ913DWRGG6