20181127-法国巴黎银行-BRAZIL__Entering_a_local_USD_18m_rates_payer_position__Cupom__9页_413kb

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

Core Content

This document outlines a trade idea for entering a local USD rates payer position in Brazil, specifically focusing on the 18-month tenor of the Cupom Cambial curve. The strategy is based on the divergence between market rates and fair value estimates from BNP Paribas's internal model.

Key Message

• The gap between the market and fair value estimates has widened, creating a potential opportunity for a payer trade.
• The 18m tenor is currently 46bp below the model's fair value estimate, indicating a mispricing.
• The suggested trade structure involves a payer position in the FRA Apr-19 versus Jul-20.
• The trade is designed to net out BRL rates exposure and open a local USD payer position.

Trade Structure

• Buy USDBRL 4 Apr 2019 against sell USDBRL 3 Jul 2020 at 1774 pips (331 vs 2105 pips).
• Spot reference: 3.8924
• Notional amount: USD84mn against USD88mn (FX delta neutral)
• Receive DI Apr-19: 6.488%
• Pay DI Jul-20 (offshore): 7.515%
• DV01: ~USD10,000
• Initial target: 4.30%
• Stop loss: 3.70%

Local USD Rates Model vs Market Values

The table and graph illustrate the difference between the model's fair value and market rates for various tenors:

The gap (bp) shows how much the market rate is below the model's fair value estimate, with the 18m tenor being the most mispriced at -46bp.

Trade Recap

• The team has executed six trade ideas this year, achieving a total profit of 131bp.
• Recent trades include:
  1. Payer trade on 1 Feb – 27bp profit
  2. Payer trade on 10 Apr – 25bp profit
  3. Payer trade on 23 May – 6bp loss
  4. Receiver trade on 24 Sep – 30bp profit
  5. Payer trade on 25 Oct – 26bp profit
  6. Payer recommendation on 13 Nov – 28bp profit

These trades indicate a consistent approach to exploiting market model divergence in local USD rates.

Key Information

• The trade is not investment research under MiFID II.
• It is a marketing communication and not independent research.
• The Cupom Cambial spread is compared to libor.
• The trade structure is FX delta neutral.
• The DV01 of the trade is approximately USD10,000.
• Risk factors include market volatility, counterparty risk, and liquidity constraints.
• The document is non-independent and may be subject to conflicts of interest.
• The information is not guaranteed in terms of accuracy or completeness.
• Indicative prices are provided based on internal models and may vary significantly from other sources.
• The document does not constitute an offer to buy or sell any financial instruments.
• Legal disclosures apply in various jurisdictions (US, UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain).

Disclaimer

• This document is not investment research and is intended for professional clients.
• No liability is accepted for any losses arising from reliance on the document.
• Past performance is not indicative of future results.
• The information is for internal use and may not be shared without consent.
• BNP Paribas may have conflicts of interest due to its involvement in related transactions or advisory roles.
• Options and ETFs mentioned in the document are high-risk and not suitable for all investors.
• Restricted securities may not be registered under US law and are only available to QIBs or non-US persons.