MARKET MOVER - BNP PARIBAS - Investment Services India

Trade Reviews
Options, Money Market and Bond Trades – Tactical & Strategic Trades
This page summarises our main tactical (T) and strategic (S) trades. The former focus on short-term horizons (a few weeks)
allowing one to play any near-term corrections within a defined trend, while the latter rely on a medium-term assumed trend.
For each trade we provide the expected target and the recommended stop loss.
Current* Targets Stop Entry
Existing Strategies
Yield Curves
EUR Flattener Sell OEZ0 Buy RXZ0
We re-enter flatteners after FOMC. 5y/10y offers the best risk/reward profile.
GBP RV Pay GBP 2/5/10Y 3M Sell L H1H2
5y GBP is back at extremly expensive levels. We entered 2/3 of the position.
Cross Markets
USD Spread Flattener Sell 10Y ASW Buy 2Y ASW
Auction analysis suggests 5y spread tends to widen more compared to 10y and 30y
spreads post-auction (from T-5 to T+5). 5s10s spread curve has flattened
consistently in the past eight auctions, by an average of 4.66bp.
Gilt ASW Buy Gilt 2.75% 2015 OIS ASW
Pure RV trade that looks to play the cheapness of the 5y sector.
Linkers
EUR/FRF BE Spread Buy OBLei-13 BE 2.25% Apr-13 Sell OATi-13 BE 2.50%
Jul-13
Front-end EUR/FRF cash BE spreads do not seem to be pricing the carry
differential ahead with 3m fwds below the 18m range.
Money Markets
Sterling Fly Sell L M1M2M3
Fly decoupled from US one and BoE on hold for a while. Enter half now and on a
move to +1.
Eurodollar box Sell EDM1Z1 Buy EDM2Z2
That box is a safer way to play a protracted Fed status quo.
78.0
(S)
-9.0
(T)
-20.5
(T)
23.0
(S)
-36.0
(T)
-11.0
(S)
-13.0
(T)
65.0 82.0 77.5
(22-Sep)
10.0 -13.0 -5.75
(09-Sep)
-24.75 -18.75 -20.75
(23-Sep)
10.0 26.0 29.0
(09-Aug)
Carry
/ mth
-20.0 -49.0 -43.0 0/+10/+2
(17-Sep) 5bp
-18/-20 5.0 -4.0
(22-Sep)
-18/20.0 -3.0 -7.5
(09-Sep)
Options
USD Conditional Bull-Flattener Sell 6M1Y ATMF Rec Buy 6M5Y ATMF Rec +52k 300k -150k 0k
Realized curve move in a rally is attractive in beating the hurdle of paying upfront for
this trade, and 6m fwd curve is 10bp steeper than spot which makes up for the cost
(typically has been the reverse during crisis).
(S)
(03-Sep)
Sterling Put Spread Buy L M1 9825/9875 P/S 1X2
1.0 50.0 0.0 1.0
Cheap hedge vs the SLS expiry.
(T)
(17-Aug)
Euribor Put Spread Buy ERZ0 9875/50 P 1x2
1.0 12.0 -1.0 1.0
Playing the normalisation of liquidity by year end.
(S)
(30-Jul)
USD Payer Spread 1x2 Buy 1Y10Y Pay ATMF+50 Sell 1Y10Y Pay ATMF + -10k 300k -150k 0k
97.5
(S)
(29-Jul)
In the coming months we see the 10y staying under 3.5% as it has since the Euro
debt crisis unfolded, and probably trading closer to 3%.
Beyond that, we expect a normalization to higher rates although it would be a
stretch to look for 5% in 2011. This trade loses money in 1y time only if we selloff by
almost 200bp.
*Tactical (T) and strategic (S) trades. **Risk: vega, gamma for options, or ΔDV01 for futures, bonds and swaps.
Risk**
P/L
(ccy/Bp)
10K/01 EUR -5k
-0.5bp
-2.0 7k/01 GBP -21k
-3bp
10k/01 USD -2.5k
-0.25bp
15k/01 EUR +90k
+6bp
15k/01 EUR
+105k
+7bp
5K/01 GBP +35k
+7bp
17.5k/01 USD +92k
+5.5bp
1k/01 USD
+52k
5k/01 GBP
+0k
25k/01 EUR 0k
0bp
1k/01 USD
-10k
Interest Rate Strategy 23 September 2010
Market Mover, Non-Objective Research Section
43
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