20180822-法国巴黎银行-Brazil__Entering_into_a_local_USD_rates_receiver_position_8页_505kb

Summary of the LATIN AMERICA STRATEGY Document

Core Content

This document outlines a tactical trading strategy for local USD rates (Cupom Cambial) in Brazil, specifically recommending a receiver trade in the 2Y tenor of the USD curve. The strategy is based on the divergence between market values and the firm's fair value model.

Key Information

• Document Producer: Banco BNP Paribas Brasil S.A.
• Strategy Focus: Local USD rates in Brazil.
• Recommended Trade: A receiver trade in the FRA Jan-19 vs Jan-21.
• Structure:
  • Sell USDBRL 3 Jan 2019 at 4389 pips
  • Buy USDBRL 4 Jan 2021 at 4830 pips
  • Spot reference: 4.077
  • Notional: USD 54.5mn vs USD 60mn (FX Delta neutral)
• Interest Rates:
  • Pay DI Jan-19 at 6.81%
  • Receive DI Jan-21 at 9.665% (offshore)
• DV01 Exposure: ~USD 10k
• Initial Target: 4.40%
• Stop Loss: 5.40%
• Profit History: Three previous recommendations yielded a total of 46bps profit.

Main Points

Market vs Model Divergence

The gap between the market and the fair value model has widened, with the 2Y tenor being 44bps above the model, making the receiver trade particularly attractive.

Historical Performance

• 1 February: Closed a payer recommendation with a 27bp profit
• 10 April: Closed a payer recommendation with a 25bp profit
• 23 May: Closed a payer recommendation with a 6bp loss

These results indicate that the strategy has had mixed success in the past, but the current divergence is seen as a favorable opportunity for a receiver position.

Trade Structure and Exposure

• The trade is designed to net out BRL rates exposure and open a local USD receiver position.
• The FX Delta is neutral, meaning the trade is not exposed to currency fluctuations.
• The DV01 of the trade is approximately USD 10k, which is a measure of the trade's sensitivity to interest rate changes.

Important Notes

• The document is a marketing communication, not investment research, and is non-independent due to potential conflicts of interest.
• Legal Disclaimer: The information provided is not to be relied upon as authoritative or investment advice.
• Confidentiality: The document is provided confidentially and not to be distributed without prior consent.
• Risk Disclosure: The document highlights the high risk associated with the transactions, including market, counterparty, and liquidity risks.
• Regulatory Context: The document is subject to various legal and regulatory requirements depending on the jurisdiction, including MiFID II and UK Financial Conduct Authority rules.

Conclusion

The strategy focuses on exploiting market inefficiencies in the Brazilian USD curve, with a receiver trade recommended at the 2Y tenor due to a 44bps gap between market and model values. The trade structure is designed to neutralize FX exposure and capitalize on the spread. The historical performance of similar trades has shown both profit and loss, indicating the volatility and risk involved. The document serves as a tactical recommendation and should be used with caution and independent evaluation.