Tuesday, September 15, 2015

US: Rate Playbook for the forthcoming FOMC - RBS

FXStreet (Delhi) – John Briggs, Head of Strategy at RBS, suggests that the decision for the September FOMC meeting rests on a razors edge and we believe it is a close call; we feel that the best rate position into this binary event is no position.

Key Quotes

“At this stage, it feels like for every reason to go there is a reason not to go. We believe that while it is a close call, raising rates at the September meeting is the “lesser of all evils.”

“But it is not just the binary nature of the event that has us shunning any positioning into the meeting, it is the opinion that given various scenarios, there will be good opportunities after the meeting to position for the medium term.”

“We prefer to “save our ammo,” as the potential market moves vary greatly depending on the outcome. In sum, we recommend the following trades, given four possible outcomes:

(1)The Dovish Hike: Outright buy 10yr on initial selloff, and add on dips to 2.25% or similarly in 30s against 3.05%. Curve: Enter 2s10s or 5s30s flatteners.
(2)The Hawkish Hold: Outright buy 5yrs down to 1.40%. Curve: Enter 5s30s steepeners targeting 160bps initially.
(3)The Dovish Hold: Outright buy 5yrs down to 1.30%. Curve: Enter 5s30s steepeners up to 160bps.
(4)The Hawkish Hike: Outright buy 30yrs. Sell 2s and/or Reds down 10bps. Curve: Enter 2s10s flatteners down to 135bps.
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