SNB: Unlikely To Be Deterred From FX Tools Despite US Monitoring

Citi note that “the ongoing tariff de-escalation has taken our tariff hedge trade – 10yr BTP-OAT widener – to its stop this week.”

• They write “the BTP-Bund spread no longer looks rich vs European equities (though it still does vs European credit) and thus should be open to any further risk rally. However, BTP spreads are now back at pre-tariff levels with tariff risks fully priced out, and the pre-tariff hurdle at 100bp likely to come back into play”.
• Overall, they still see “risk-reward tilted towards widening. Having said this, the combination of risk factors has likely contributed to relatively flat positioning in BTPs, with potential for carry longs into summer if tariff de-escalation continues but with a relatively low bar for disappointment on that front”.
• In the meantime, they will keep an eye on “Japan flow data, for whether the new Japanese affinity to BTPs over recent months extended in March. Global portfolio flow data is already showing that 12-month rolling demand for Italian debt (not necessarily all BTPs) is now approaching that of French debt, while Spanish demand remains subdued”.

ERK5 97.87/97.75ps, bought for 0.25 in 3k.

• Bund is slowly edging back to where it was trading at before it sold off 50 minutes before the Cash Open, was trading circa 130.97, at the top of its Overnight range.
• There's hasn't been any real notable flow, nor on the small sell off, or the bounce, Volumes are subdued, as Investors await on the FOMC later Today.
• That initial support area of 130.70/130.75 has still held despite the low 130.66 print Yesterday.
• And as noted on the Bund open, small resistance moves down 131.24.