Bank of America Global Research goes long US vs EU real yields long to protect against crowded positioning and sticky US inflation.

The US CPI print led to a sharp rally in rate markets: one 25bp rate hike was taken out of the front-end, 10y real yields rallied some 25bp too, with a 35bp rally in 1y breakevens. Risk assets spiked and the dollar declined...We expect USTs to outperform, in line with consensus. Concerns about positioning, and on-going uncertainty surrounding the inflation outlook, lead us to favour expressions in real yields," BofA notes.

"We recommend a real yield long in TII Feb 2046 vs DBRei Apr 2046 at 209bp, target 150bp, stop-loss 240bp. The risk to the trade is the market questioning the growth outlook in Europe much more meaningfully than in the US," BofA adds.

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