UBS Fixed Income-Global Rates Strategy _Non-linear rates 2s5s USD, long end ...-117718047

ab10 September 2025Global ResearchGlobal Rates StrategyNon-linear rates: 2s5s USD, long end EUR1. 2s5s bullish steepeners and the cooling US economy. 2s5s steepeners should perform if economic weakness continues to develop. Receivers isolate the bullish case cheaply. Removing flattening risk at higher rates covers the case where the front end rolls up to spot. We also maintain our long 2y USD vs 5y EUR in receiver spreads recommendation (USD-EUR x-market bullish steepening). 2. USD curve dynamics. close 5s10s bear flatteners, but keep short USD vega.3. Long end EUR steepening risks rising. Strong stocks and higher rates mean Dutch pensions will have less PV01 to shed. The risk is that speculative positions waiting for 30y paying take profits sooner. We continue to recommend EUR long end steepeners as a core view, but it is worth both watching carefully and looking at options for protection. EUR steepeners have part of a global theme, but global hedges are not a solution we like compared to simply reducing risk. To mitigate squeeze risk, OTM receivers are effective and not expensive. We recommend a 20bp OTM 3m30y broken receiver fly as a cheaper alternative.Figure 1: Non-linear rates trade recommendationsExpressionPublishedClosedEntryLastP&L (bp)P&L cashT-pricerEUR linear. 2y3y/20y10y steepener17-Feb-257 bp7 bp0 bp- T-PricerEUR conditional curve. Bearish steepener, 1y expiry 10s30s, atm zero cost17-Feb-250 bp33 bp33 bp3,330 T-PricerEUR CMS caps. 1y single-look 25bp-wide cap spread on 10s30s17-Feb-258 bp22 bp14 bp1,443 T-PricerUSD payer ladder. 6m30y 4.2%-4.45%-4.75% strikes22-May-250 bp2 bp2 bp243 T-PricerEUR straddles. Sell 1y1y atm.22-May-25-53 bp-79 bp26 bp2,565 T-PricerUSD conditional curve. Bullish steepener, 3m expiry 2s5s02-Jul-250 bp0 bp0 bp17 T-PricerEUR payer butterfly spread. 6m2y, 2.05%-2.15%-2.25%-2.35% strikes02-Jul-252 bp3 bp1 bp120 T-PricerEUR payer butterfly spread. 6m10y, 2.7%-2.8%-3.0%-3.1% strikes02-Jul-252 bp3 bp1 bp60 T-PricerUSD vega. Sell 10y20y atm straddle delta-hedged (-200k vega)02-Jul-25-201 bp-194 bp7 bp696 T-PricerUSD vega. Long 3y30y vs short 10y20y delta-hedged (net -130k vega)02-Jul-25-101 bp-106 bp-5 bp478- T-PricerUSD-EUR vega. Long EUR 10y30y vs short USD 10y20y delta-hedged02-Jul-25-12 bp-10 bp2 bp220 T-PricerGBP receiver ladder. 6m30y 4.25%-4.00%-3.75%-3.50%02-Jul-256 bp5 bp-1 bp52- T-PricerUSD-EUR receiver spreads. Long USD 3m2y atm-5/atm-40 vs EUR 3m5y atm/atm-5008-Aug-250 bp4 bp4 bp407 T-PricerEUR receivers. 3m30y ladder 2.7-2.6-2.5-2.4 strikestoday1 bp1 bp0 bp0- T-PricerEUR CMS capfloor ladder. -24bp/1bp/26bp/50bptoday6 bp6 bp0 bp0- T-PricerEUR linear. 2y3y/20y10y steepenertoday7 bp7 bp0 bp- T-PricerClosedEUR linear. 2y3y/20y10y ste