Liquid Insight: Euro linkers – just add seasoning

The concentration of coupons and index events over the summer should be a powerful bullish influence for euro linkers. Cash-for-cash extensions to receive forward real yields is the best way to capture this (and it minimizes oil risk).A "home bias" should favor OATei 2027 over DBRi spread looks far too wide anyway, if seasonality is adjusted for.

The story might be well known to many that are directly involved with inflation-linked markets, but could not write about Eurozone linkers in July without discussing the summer seasonal dynamics. July sees France's linkers pay €3bn in coupons, while the index departure of BTANi 2016s will extend All Euro linker indices by an estimated 0.15. August should then bring a supply break, followed by BTPei coupons of €1.4bn in September and a similar index extension as BTPei 2016s then exits. In the past, it is believed that, this collection of positives over the summer months has been a force for bull flattening in the Euro real yield curve (and richening of bond linkers on B/E and ASW), says BofA Merrill Lynch.