International Interest Rate Strategist

- Overview: "While there appears little value in rates markets at current levels, the
absence of any stimulus for higher yields and seemingly endless supply of cash
continue to fuel the bond rally."
- "We see no value in bond yields at current levels, but think cross-market trades
are a better cyclical reversal trade given their superior sustainability relative to
duration trades."
- US Rates Strategy: "The announcement of the re-float of the Yuan is supportive
of higher US Treasury yields at the margin, but uncertainties elsewhere will
probably offset the upward pressure on yields."
- Euro Rates Strategy: "10yr US-EUR spreads are testing support. We see scope
for Europe to recoup lost ground, although near-term concerns remain
regarding the outlook for money market rates."
- "We use the latest 2010 fundamental forecasts to update our Sovereign Risk
Index and calculate how the envisaged fiscal progress in 2011 would affect
countries’ relative SRIs. We also examine swap spread curve opportunities."
- Sterling Rates Strategy: "The emergency UK Budget delivered strong and early
fiscal tightening. Issuance looks set to decline sharply in the coming years
which is a positive for the market, but many other challenges lie ahead."
- APAC Rates Strategy: "Incentives for the Japanese to retain their home bias
remain but carry is becoming increasingly difficult to find."
- "We expect AUD rates to remain in their recent ranges despite the RMB and
Australian political developments."
- Global Inflation Strategy: "Euro linkers should find support in the coming weeks
from positive cash-flows and reduced issuance. This should help break-evens
catch up with the rally in risk assets."
- Euro Flow Analysis: "The dominant flows in Europe over the last month have
been buying of 10yrs and selling of 30yrs, mostly in swaps. There has been a
clear duration extension bias to bond flows and with a focus on the larger liquid
markets of Germany (30yr), France (10yr), Italy (5yr) and the Netherlands
(10yr)."
Citigroup International Interest Rate Strategist June2010