Market Economics | Interest Rate Strategy - BNP PARIBAS ...

EMU Debt Monitor: Key RV Charts
Chart 3: Hedged Dec 12/Nov 15/Mar 20 BTP fly
Chart 4: 2020/2040 BTP/Bono box: normalisation started
40
Top on BTP/bund
5
30 BTP 5y cheap
spread
0
BTP 2040 too expensive
20
Sharp BTP
-5
10
rally
vs Bunds
-10
-15
0
-20
-10
-25
-20
Active CBs
purchase
-30
BTP 2040 too cheap
-30
-35
BTP 5y rich
Sharp BTP sell-off -40
-40
Jan-10
May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11
Mar-10 Jun-10 Sep-10 Nov-10
Hedged Dec 12/Nov 15/Mar 20 BTP Fly
2015 BTPs are trading again at very cheap levels on the
BTP curve – a bit cheaper than June 2010 levels. We expect
a rebound and recommend playing it through June 13/Nov
15 BTP compression trades (see last week’s Trade Ideas
section).
Chart 5: 5y H1 ctd valuation: around 7bp too cheap
Bono/BTP 2020/2040 box
The normalisation has started with a 5bp box tightening. The
latter remains 15bp from its average, however. We played
the compression last week through Sep 20/Sep 40 BTP
flatteners entered at 85.5, targeting 70bp then low 60s.
Chart 6: 10y/30y DSL/OAT box: 2042 DSL too expensive
30
50
Hedged Eur h11 CTD Fly
OAT Apr 20 / DSL 42
5y too cheap
expensive
40
25
30
20
20
10
15
0
-10
10
-20
5y expensive
OAT Apr 20/DSL
5
-30
42 cheap
-40
Exotic desks hedging
US QE 0
-50
May-10 Aug-10 Nov-10 Feb-11
May-07 Dec-07 Jun-08 Jan-09 Jul-09 Feb-10 Aug-10 Mar-11
DSL July 20/OAT Apr 20/Jan 42/OAT Apr 41
The last sell-off following the ECB press conf led to a
marginal cheapening of 5y ctd. Currently, 5y German H1 ctd
is 7bp too cheap on the curve compared to only 3bp on
swaps. Even though it is on the cheap side, it is far from
April 2010 levels.
Chart 7: CTZ Feb 12 too expensive on the CTZ curve
Recurrent PF buying of 30y Bunds and DSLs has pushed
the 10y/30y DSL/OAT box to extreme levels (i.e. DSL too
expensive). We have the opposite situation at the short end.
Keep July 14 DSL/BTAN widening trades.
Chart 8: RFGB/ATS 2013, 15,17: ATS Oct 13 too expensive
50
-5
45
40
35
30
25
20
15
10
5
0
Feb-10 Mar-10 Apr-10 Jun-10 Jul-10 Aug-10 Sep-10 Nov-10 Dec-10 Jan-11
Sep 11/Feb 12 Feb 12/Aug 12 CTZ Feb 12/Apr 12 Apr 12/Aug 12
CTZ Feb 12 outperformed both within the CTZ curve and
within the CTZ/BKO box (the former is back at new lows).
Holders of Feb 12 should either switch into Sep 11 or - for
the most aggressive – into Aug 12, enjoying a 38/40bp pickup.
-15
-25
-35
-45
-55
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11
Fin July 13/ ATS Oct 13 Fin July 15/ ATS July 15 Fin Sep 17/ ATS Sep 17
While RFGB/ATS tightened all along the curve, 2013
spreads overshot, falling below March 2010 lows. Other
maturities are 15/20bp above. Holders of ATS Oct 2013
should switch back into other AAA such as OAT Oct 13,
enjoying some pick-up.
All Charts Source: BNP Paribas
Eric Oynoyan / Ioannis Sokos 20 January 2011
Market Mover, Non-Objective Research Section
44
www.GlobalMarkets.bnpparibas.com