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tanguy bretagne Profile picture
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13 Jun, 7 tweets, 3 min read
As rates continue to rally I'm starting to worry we might get some more pressure in EUR rates.
There's been decent unwind of shorts in USD and some decent reduction in EUR this week.
1/x
Trend Followers have had similar momentum with decent buying of govies (and selling of commodities).
2/x
What's even more striking at the moment is that they have now moved into USD 5s30s flatteners.
And they have reduced their EUR steepener extensively.
3/x
Also when I look at what was priced in vol at the March FOMC, we have just moved within the 25 delta cone. And as such a 25bp rally in EUR 30s over the next few months could be just as likely.
4/x
And the current vol surface has not moved really]. Vols are just lower, while the USD smirk has been removed and is now a nice smile.
5/x
And the tailwind for higher rates of the Grune party beating Merkel is equally waning fast.
6/x
So as much as I was a proponent of seeing Schwarze Null for Bunds I'm starting to reconsider. Especially if the Fed is not threatened by inflation.
Now let's go enjoy the sun.
7/7

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More from @pauleluard

tanguy bretagne Profile picture
1 Jun
A couple recent studies in the US which make me believe the OER rise will not be as bad as we believe despite a red-hot housing market.
1/x
First is the NBER study looking at where people moved during COVID.
They didn't go far and ended at the periphery of the city rather than move to smaller cities/towns.
nber.org/papers/w28876
2/x
The other is a blog post by Corelogic about how rents have evolved in Covid time.
Seems it is rents from "detached" housing which has seen the rises.
Which would make the link with people moving to the "donut" of the large cities.
3/x
Read 5 tweets
tanguy bretagne Profile picture
29 May
So a milestone has been reached.
5k followers.
It feels weird as I still struggle with the idea so many people could be interested in what I have to say.
In a sense it is very humbling.
So maybe time for a couple background items.
I’n obv French (from the wine selection) and from the western region of Brittany.
Is there any reason to be proud? None. But nonetheless I do feel it is my home and love this land of mine.
I studied engineering in a grande ecole and finance. Amusingly I was specialising in AI before we called it such (optimal control).
Everything is a min max problem. Or a tropical algebra.
Read 15 tweets
tanguy bretagne Profile picture
25 May
We’re starting to see some nervousness amongst market participants with regard to rates moves and the positioning.
All my positioning trackers continue to show market quite short rates, though there has been some decent change by some players.
1/x
In particular a couple things strike me:
CTAs are now NOT forced sellers. Ie a move higher in rates is not making them increase their FI shorts.
Here is the current positioning, and a move of 10bps higher in the next month will not force them to add to their shorts.
2/x
Here is how that would look like in Bunds :
a sell-off of 25bp (red line) brings positioning from -31% to -55%
a rally of 25bp (blue line) brings its from -31% to +20%.
3/x
Read 12 tweets
tanguy bretagne Profile picture
16 May
Listened to the latest OddLots with @econjared (thanks @BRzymelka for h/t).
The inflation discussion continues as the data keeps its variance. One thing is certain: the Fed will struggle like us to read any short term dynamics out of those prints.
1/x
I believe we can take two points out of this podcast:
a)The WH wants workers to get back bargaining power
b)Companies/Investors are cash rich but don’t invest in long term projects: taxes are a way for government to fix that
2/x
There has been a confiscation over the last decades of the bargaining power of workers by companies (same trend everywhere) as we moved into more services economies.
But the latest “gig economy” only amplified this issue.
3/x
Read 15 tweets
tanguy bretagne Profile picture
20 Apr
Quick thread here as I get a lot of questions with regards to “why the risk-off”.
• SPX Options expired last week dropping a huge amount of gamma which was protective of downside short term.
1/x
• CTAs are better buyers of US Bonds
To give you an idea the 30y UST signal is -50%.
If we sell-off 25bp in the next month that moves it to -62% but if we rally 25bp it moves it to -10%.

2/x
That evolution is only starting to be priced in the rates vol market.
Here you can see the tails for 3M expiry swaptions. The receiver vols (ie the ones for lower rates) have come back, but we're still far last month's vols esp 3M>10Y -25bp.
3/x
Read 7 tweets
tanguy bretagne Profile picture
15 Apr
So this bond rally looks like deleveraging. There's been strong paying since the start of the year, as we got into the reflation.
Now Powell is pushing against "fast" and the market is caught a bit too short. Hence strong flattening.
1/x
UK in particular is at risk because between Brexit and reflation and no negative rates, plus two smart BOE guys leaving (@GVlieghe and Haldane), market not sure of direction. And as you can see today even 2s got bid.
CTAs in gilts are also much better buyers of 10s and 30s.
2/x
Thing is, the latest data is strong and yes one can disregard the inflation risk for now but we cannot kill it entirely. But Fed pricing was already strong. Here I'm looking at 1y gaps in ois and we can see the risk reward for more hikes was not good.
3/x
Read 4 tweets

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