20181220-法国巴黎银行-Colombia__Taking_profit_on_2y_IBR_receiver_8页_930kb

Summary of "Colombia: Taking profit on 2y IBR receiver" (20 December 2018)

Core Content

This document outlines a trade idea related to the Colombian Interest Rate Swap (IBR) market, specifically focusing on the 2-year tenor. It details the strategy, rationale, and outcome of a trade initiated in July 2018 by the FX & IR Latin America Strategy team at Banco BNP Paribas Brasil S.A.

Main Points

• Trade Strategy: The team opened a 2-year IBR receiver position in July 2018 due to a significant mispricing in the market relative to their internal model.
• Market vs. Model: The 2-year IBR tenor was trading almost 30 basis points (bp) above the model's fitted value at the time of the trade initiation.
• Carry and Roll-Down: The position had a high positive carry and substantial roll-down potential, making it an attractive opportunity.
• Profit Taking: As of 20 December 2018, the gap between the market price and the model's fitted value has closed, indicating that the 2y IBR swap is now at fair value. The team has decided to take profit on the receiver position.
• Profit Realization: The trade was closed at 4.48%, yielding a 28bp gain.

Key Information

• Tenor and Pricing:

  • IBR 1Y: Market = 4.39%, Model = 4.33%, Gap = +6bp
  • IBR 2Y: Market = 4.65%, Model = 4.65%, Gap = 0bp
  • IBR 3Y: Market = 4.95%, Model = 4.97%, Gap = -3bp
  • IBR 5Y: Market = 5.39%, Model = 5.54%, Gap = -15bp
  • IBR 10Y: Market = 6.13%, Model = 6.42%, Gap = -29bp

• Market Outlook: In July 2018, the short end of the IBR curve was pricing in a significant amount of rate easing by the end of 2019, indicating a downward risk bias in the market.

• Model vs. Market: The team's internal model suggested that the 2y IBR was overvalued at that time, and the trade was based on this discrepancy.

• Transaction Closure: The team has decided to close the position at 4.48% with a 28bp gain, respecting the initial target and market conditions.

Legal and Regulatory Information

• Non-Independent Research: This document is non-independent research and may be subject to conflicts of interest.
• Marketing Communication: It is considered a marketing communication under MiFID II and not investment research.
• Confidentiality: The document is provided on a strictly confidential basis and may not be distributed without prior written consent.
• Jurisdictional Restrictions: The document contains information that may not be eligible for sale in all jurisdictions or to certain investors.
• Disclosure of Risks: It includes important disclosures about the risks involved in the products and investments discussed, including options, ETFs, and convertible securities.
• Regulatory Compliance: The document is subject to various legal and regulatory requirements across different jurisdictions, including the UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, and Switzerland.

Conclusion

The strategy involved taking advantage of a mispricing in the 2-year IBR swap, which was later corrected, leading to the decision to close the position and take profit. The analysis highlights the importance of aligning market positions with internal models and the risks associated with such trades.