Key Global Themes for 2H09
1. 2H09: Managing Cliff-Effect Risk and an Inconvenient Recovery Caron 3
What’s Changed 3
An Inconvenient Recovery 3
Unstable spreads in 2H09 4
2. 2H09 Global ‘Cliff-Effects’
US Market Support Facilities Continue to Decline Caron/Cashyn 6
UK and European Support Facilities Are Set to Decline Lin 7
Asia-ex Japan Support Facilities to Decline Gradually R. Arora 7
3. Global Supply: Government Issuance Should Remain Elevated Mutkin/Lin 8
4. Global Duration: A Bias for Higher Back-end Rates 9
US Caron/Cashyn 9
UK/Europe Mutkin 10
Japan Lim 10
5. Global Curves: Steepening Bias Remains Intact 11
US Caron/Cashyn 11
UK/Europe Mutkin 12
Japan Lim/Ito 12
6. Global Spreads: US MBS to Widen while EUR Spreads Tighten 14
GSE Mortgage & Agency Outlook Rao/Gordon/Koscielniak 14
European Spreads Bradley 16
7. Global Inflation: Upward Risk Bias 18
Central banks’ credibility to remain intact throughout 2H09 Roberts 18
UK Rates Market Inconsistent with Inflation Market Roberts 18
EUR BEI to Rise Despite the Trough in Inflation Roberts 19
US Real Yield Swap Curves Are Now Too Flat Cashyn 19
Japan – Own Medium-Term Inflation Lim/Ito 20
8. Global Volatility: Sell the Range, but Keep Core Long Volatility 21
US Volatility to Remain Elevated in 2H09 McGraw/Azarias 21
Our Core Trading Views for Euro Vol in 2H09 Gargh 23
Japan: Our Preferred Long Volatility Strategies Lim/S. Arora 25
9. AXJ Interest Rates: Giving Way to Reflation Enthusiasm Liu/R. Arora 29
Special Section: Optimal Global Front-End Rolldown Trades Azarias 35