20180803-法国巴黎银行-Brazil_strategy__Target_reached_for_receivers__FRA_Jan20s21s_keep_the_position_9页_418kb

Latin America Strategy Summary

Core Content

This document outlines the current strategy and market outlook for Brazil's DI (Discount Index) market, focusing on specific FRA (Forward Rate Agreement) positions and their performance. It is produced by Banco BNP Paribas Brasil S.A. and authored by the team of strategists including Gabriel Gersztein, Samuel Castro, Luca Maia, and Andre Digiacomo.

Key Positions and Targets

• FRA Jan20s21s:
  • Entry point: 10.57%
  • Original target: 10.25%
  • Target reached today, so the position is extended to 10.00%
  • PnL so far: +32bps or USD 1.16mn
• FRA Jan22s23s:
  • Entry point: 13.92%
  • Recommended to clients to keep the position
  • PnL so far: +81bps or USD 6.37mn (from Q1 2018 trade)
• Total DI Strategy Allocation: USD 40k DV01 (USD 30k for FRA Jan20s21s, USD 10k for FRA Jan22s23s)
• Stance: Tactical

Market Outlook

• The DI market has been trading in a dysfunctional manner in May/June 2018.
• Despite increased uncertainty, the market levels were significantly above the team's worst-case scenario.
• The model suggests that there is still a substantial premium in the belly and long end of the curve.
• The team maintains a high conviction in the strategy and believes that the current levels are overvalued.

Risk Management

• A USDBRL call spread 1x2 at 4.00-4.40 with USD 100mn and USD 200mn notional is used to hedge/protect existing positions.
• The PnL so far for the hedging structure is USD 480k (48bps of USD100mn allocation).
• A separate hedging structure is referenced for black swan events.

Publications Complementing the Strategy

• Brazil DI strategy update; adjusting the FRA 22s23s
• Brazil; when prices get these levels, panic shouldn't be an option: receiving 22s23s at 13.92%
• History doesn't repeat itself, but it rhymes: bulking up the FRA 20s21s
• Brazil: COPOM in no rush to review strategy (Latam economics)

Legal and Regulatory Information

Disclaimer

• This document is a marketing communication and not independent investment research.
• It is not intended to provide investment, financial, legal, or tax advice.
• It is not a prospectus, public offering, or solicitation of an offer to buy or sell securities.
• The information is based on public sources and may not be accurate or complete.
• BNPP may have conflicts of interest due to its involvement in investment banking, underwriting, or advisory services related to the entities mentioned.

Risk and Performance Warnings

• The document contains hypothetical or back-tested performance data, which may not reflect actual market conditions or include liquidity, fees, and transaction costs.
• Performance data is for illustrative purposes only and not indicative of future results.
• There is no guarantee that any indicated returns or results will be achieved.

Distribution and Jurisdictional Information

• The document is intended for Professional Clients and Eligible Counterparties as defined under MiFID II.
• It is also available to major U.S. institutional investors under specific conditions.
• In the U.S., this document is a general solicitation of derivatives business and not for retail investors.
• It is distributed in various jurisdictions (UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, Switzerland) by BNPP's local branches and subsidiaries, each subject to specific regulatory requirements.

Confidentiality and Use

• The document is provided on a strictly confidential basis.
• It may not be copied, reproduced, or distributed without prior written consent.
• The information is not to be relied upon as authoritative or a substitute for independent judgment.

Additional Disclosures

• Options: Complex instruments with high risk, suitable only for sophisticated investors.
• ETFs: May involve tracking error, currency, and geopolitical risks.
• Convertible Securities: May not be registered under U.S. securities laws and are restricted to QIBs or non-U.S. persons.

Conclusion

The strategy focuses on maintaining and extending positions in specific FRA instruments, with a strong conviction that the current market levels are overvalued. The team has implemented a hedging structure to mitigate risk, and the outlook remains cautiously optimistic with a tactical stance. The document is a marketing communication and must be used with caution, as it does not constitute investment advice and is subject to legal and regulatory constraints.