Market Economics | Interest Rate Strategy - BNP PARIBAS ...
Market Economics | Interest Rate Strategy - BNP PARIBAS ...
Market Economics | Interest Rate Strategy - BNP PARIBAS ...
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Trade Reviews<br />
Options, Money <strong>Market</strong> and Bond Trades – Tactical & Strategic Trades<br />
This page summarises our main tactical (T) and strategic (S) trades. The former focus on short-term horizons (a few weeks)<br />
allowing one to play any near-term corrections within a defined trend, while the latter rely on a medium-term assumed trend.<br />
For each trade we provide the expected target and the recommended stop loss.<br />
Current* Targets Stop Entry<br />
Closed Strategies<br />
USD Spread Fly Sell 3y ASW Buy 5y ASW Sell 10y ASW<br />
Trade closed (12/7). PnL: EUR +21k.<br />
28.0 6.0 13.1<br />
(06-Jul)<br />
Carry<br />
/ mth<br />
Risk**<br />
P/L<br />
(ccy/Bp)<br />
10k/01 USD +26k<br />
+2.6bp<br />
New Strategies<br />
USD Spread Fly Buy 3Y ASW Sell 5Y ASW Buy 7Y ASW<br />
Auction trends indicate that this spread fly has a strong downward bias in the days<br />
after the 3y auction. From an RV perspective, the fly is also at the high end of its<br />
recent range.<br />
10.5<br />
(T)<br />
7.0 13.0 10.125<br />
(13-Jul)<br />
10k/01 USD -4k<br />
-0.4bp<br />
Sell 30y UK Breakeven<br />
We expect a break below the 3.30-3.80% ‘normal’ range on 30y cash BE following<br />
the switch from RPI to CPI indexation for pension funds and ahead of 30y supply.<br />
We target 3.10%.<br />
OATEI Flattener Buy OATei 1.1% 2022 Sell OATei 2.25% 2020<br />
Spread is steep relative to OAT & OATei curves. We expect a correction in the<br />
coming two weeks.<br />
340.0<br />
(T)<br />
23.0<br />
(T)<br />
310.0 346.0 340.0<br />
(15-Jul)<br />
19.0 29.0 26.5<br />
(15-Jul)<br />
-0.6bp<br />
10k/01 GBP +0k,<br />
+0bp<br />
+0.2bp 20k/01 EUR +70k<br />
+3.5bp<br />
Existing Strategies<br />
Yield Curves<br />
EUR Flattener Receive EUR 1M-fwd 2s10s<br />
Asymmetric near-term response to "gradual" phasing out of unconventional<br />
policy/liquidity measures.<br />
150.8<br />
(T)<br />
115.0 200.0 184.8<br />
(04-Mar)<br />
-3bp 10k/01 EUR<br />
+340k<br />
+34bp<br />
Money <strong>Market</strong>s<br />
OIS Steepener Receive 9M3M OIS Pay 12M3M OIS<br />
Even though our macro call is not for rate hikes any time soon, we see this as a way<br />
to fade cycle-low yields in the front end, but with more limited downside and no<br />
negative carry/roll. In the event appetite recovers, this is a 'cheap short' with an<br />
option-like payout.<br />
13.6<br />
(T)<br />
28.0 8.0 14.1<br />
(02-Jul)<br />
25k/01 USD -<br />
12.5k<br />
-0.5bp<br />
Euribor Basis Buy ERU0 Basis<br />
Protection trade into the ECB.<br />
35.5<br />
(S)<br />
50.0 30.0 37.0<br />
(10-Jun)<br />
5k/01 EUR -7.5k<br />
-1.5bp<br />
Options<br />
Euribor Fly Buy ERU0 9862/75/87 P<br />
Cheap downside strategy, playing the normalisation of Eonia. The position<br />
complements with the upside fly (no-normalisation strategy).<br />
1.5<br />
(S)<br />
12.5 0.0 1.5<br />
(13-Jan)<br />
10k/01 EUR 0k<br />
0c<br />
Euribor Fly Buy ERU0 9912/25/37 C<br />
Upside protection in case of liquidity spillover post June. Rolldown trade.<br />
1.5<br />
(S)<br />
12.5 0.0 1.5<br />
(12-Jan)<br />
10k/01 EUR 0k<br />
0c<br />
Sterling Fly Buy L Z0 9900/25/50 C<br />
Rolldown strategy for unchanged MPC through 2010.<br />
12.5<br />
(S)<br />
25.0 0.0 3.5<br />
(05-Jan)<br />
5k/01 GBP +45k<br />
+9c<br />
*Tactical (T) and strategic (S) trades. **Risk: vega, gamma for options, or ΔDV01 for futures, bonds and swaps.<br />
<strong>Interest</strong> <strong>Rate</strong> <strong>Strategy</strong> 16 July 2010<br />
<strong>Market</strong> Mover, Non-Objective Research Section<br />
49<br />
www.Global<strong>Market</strong>s.bnpparibas.com
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