Cross Asset Flash
Goldilocks and the Three Bears

Goldilocks and the Three Bears

USTs, Bunds, Gilts: Three slightly different bears

The global economic outlook currently is one of Goldilocks: surging economic growth in the US, UK, and Europe that broadly will not generate enough inflation to elicit central bank tightening responses. Only the US expected to see above target inflation but not sustainably until late 2022.  For our above consensus growth forecasts, see our recent Economic Quarterly: Rational Exuberance.

As this outlook has evolved, bond markets have adjusted across the US, UK, and Europe, though to varying degrees.  This piece serves to put the moves in a historical context, and summarize our expectations for the future. In addition, on back of our analysis, we recommend the following:

  • US: Sell 5yrs at 0.75% or pay 2y2y at 0.80%, sell 5s on 2s5s10s butterfly at -15bps.

  • EGBs: Buy US 30yr yields vs. 30yr bund yields, hold EUR 10s30s steepeners and long 5yr EURi. We also hold long Italy vs. France and Spain, and are watchful for outright bund shorts in the next few weeks.

  • UK: Hold short 10yr gilts targeting 1.00%, short 15yr RPI (see here) which is the richest sector of the UK inflation curve.  

 Please see the attached pdf for the full analysis 






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This is Non-Independent Research, as defined by the Financial Conduct Authority. Not intended for Retail Client distribution. This material should be regarded as a marketing communication and may have been produced in conjunction with the NatWest Markets Plc trading desks that trade as principal in the instruments mentioned herein. All data is accurate as of the report date, unless otherwise specified.

This communication has been prepared by NatWest Markets Plc, and should be regarded as a Marketing Communication, for which the relevant competent authority is the UK Financial Conduct Authority.

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Note that the text above is subject to the disclaimer(s) accessible if you Click Here
John Briggs
Global Head of Desk Strategy
+1 203 897 4689
Giles Gale
Head of European Rates Strategy
+44 20 7085 5971
Theo Chapsalis, CFA
Head of UK Rates Strategy
+44 20 7085 9884


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