BofA: Futures Positioning - Core and More Core
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Bank of America analyzes European rate futures positioning alongside eurozone government bond supply dynamics. As of May 25, German curve positioning shows the most concentrated net longs in DU contracts, with OE and RX contracts net short, and UB near neutral. Italian futures hold net long positions while French futures remain neutral. Open interest increased across all German contracts week over week, though positioning reliability as a sentiment proxy diminishes as contract rolls approach.
France faces multiple underpriced headwinds this summer. Forty-five percent of its 2026 net supply is concentrated between June and August. Political risks loom over the budget season, a July ruling regarding Marine Le Pen's candidacy, and upcoming presidential campaigns. Furthermore, Moody's negative outlook could trigger a rating action by October.
Bank of America recommends a long position in EU 3.75% December 2035 versus FRTF 3.5% November 2035, targeting a 40 basis point spread with a 25 basis point stop loss. German flow data from March reveals leveraged investors net sold 3 billion euros, while banks purchased over 13 billion euros and central banks bought 32 billion euros. Next week's European government bond auction supply is expected to reach 150 to 180 billion euros, supplemented by potential syndicated issuances from Portugal, Spain, and Greece.
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