20181030-法国巴黎银行-BRAZIL__Entering_in_a_local_USD_1y_rates_payer_position__Cupom__9页_411kb

Summary of Trade Idea Document: Brazil Local USD Rates Payer Position (Cupom)

Core Content

This document outlines a trade idea related to local USD rates in Brazil, specifically focusing on entering a payer position in the Cupom Cambial (local USD rate) curve. The strategy is based on the divergence between market values and the team's fair value model estimates, with the potential for profit from this mispricing.

Key Points

• Trade Type: Payer position in local USD rates (Cupom Cambial)
• Tenor Focus: 1-year USD rate
• Market vs. Model Gap: The 1y tenor is 49bp below the model's fair value estimate.
• Trade Structure:
  • Buy USDBRL 4 Dec 2018
  • Sell USDBRL 3 Jan 2020
  • At a rate of 1363 pips (107 vs 1470 pips)
  • Spot reference: 3.695
  • Notional: USD96mn vs USD100mn (FX delta neutral)
• Interest Rate Exposure:
  • Receive DI Dec-18 at 6.415%
  • Pay DI Jan-20 at 7.20% (offshore)
• DV01: Approximately USD10k
• Initial Target: 4.00%
• Stop Loss: 3.40%

Main Views

• The gap between market and model has widened over recent sessions, indicating a potential mispricing that could be exploited.
• The team has been tactically trading local USD rates based on these divergences.
• This trade idea is part of a series of five previous trades that yielded a total profit of 102bp.
• The 1y tenor is highlighted as a front-end opportunity, with a significant 49bp discount relative to the model.

Key Information

• Model vs. Market Comparison:
  • The 1y tenor is 49bp below the model.
  • Other tenors also show discrepancies, ranging from -23bp to -58bp.
• Table Summary:
  • 1M: Market 2.88% vs. Model 71% (gap -23bp)
  • 3M: Market 3.29% vs. Model 82% (gap -6bp)
  • 6M: Market 3.45% vs. Model 106% (gap -29bp)
  • 9M: Market 3.54% vs. Model 121% (gap -45bp)
  • 1Y: Market 3.66% vs. Model 127% (gap -49bp)
  • 18M: Market 3.89% vs. Model 130% (gap -40bp)
  • 2Y: Market 3.98% vs. Model 131% (gap -41bp)
  • 3Y: Market 4.04% vs. Model 139% (gap -53bp)
  • 4Y: Market 4.11% vs. Model 144% (gap -55bp)
  • 5Y: Market 4.25% vs. Model 147% (gap -51bp)
  • 7Y: Market 4.51% vs. Model 167% (gap -58bp)
  • 10Y: Market 5.02% vs. Model 188% (gap -55bp)
• Previous Trade Performance:
  • 1 Feb: 27bp profit
  • 10 Apr: 25bp profit
  • 23 May: 6bp loss
  • 24 Sep: 30bp profit
  • 25 Oct: 26bp profit

Legal and Regulatory Information

• This document is non-independent research and is a marketing communication under MiFID II.
• It is not investment research and is not subject to independence requirements.
• BNPP may have conflicts of interest, including:
  • Holding positions in the securities
  • Acting as an advisor, manager, underwriter, or lender
  • Engaging in investment banking or underwriting services
  • Being a party to agreements with referenced entities
• Disclaimer:
  • No guarantees of accuracy or completeness
  • No liability for any loss arising from reliance on this document
  • Information is not investment advice and should not be used for decision-making without independent evaluation
  • Simulated performance is not indicative of actual results
  • Indicative prices are not actual transaction terms

U.S. and International Disclosures

• Options: Complex instruments with high risk, suitable only for sophisticated investors.
• ETFs: May involve tracking error, currency, and geopolitical risks. BNPP may have conflicts of interest.
• Restricted Securities: Some securities may not be registered under U.S. law and are only available to QIBs or non-U.S. persons.
• Distribution Restrictions:
  • In the U.S., the report is distributed by BNPP Securities Corp. to institutional investors.
  • In the UK, the document is communicated by BNPP London Branch.
  • In France, the report is produced and/or distributed by BNPP SA and BNPP Arbitrage.
  • In Germany, it is distributed by BNPP S.A. Niederlassung Deutschland.
  • In Belgium, it is distributed by BNPP Fortis SA/NV.
  • In Ireland, it is distributed by BNPP S.A..
  • In Italy, it is distributed by BNPP Succursale Italia.
  • In Netherlands, it is distributed by BNPP Fortis SA/NV, Netherlands Branch.
  • In Portugal, it is distributed by BNPP - Sucursal em Portugal.
  • In Spain, it is distributed by BNPP S.A., S.E..

Conclusion

The trade idea is based on market mispricing in the local USD rate curve, particularly at the front-end. The team recommends a payer position in the FRA Dec-18 vs. Jan-20, with a target of 4.00% and a stop loss at 3.40%. The strategy has a profitable history, with previous trades yielding a total of 102bp. However, the document clearly states that it is not investment advice and is subject to legal and regulatory restrictions.