20181015-法国巴黎银行-FRA_20s21s__9.75__BREACHED,_EXTENDING_TARGET_FURTHER_DOWN_9页_934kb

Trade Idea Summary: FRA 20s21s in Emerging Markets | LATAM

Overview

This document outlines a trade idea related to the Forward Rate Agreement (FRA) Jan-21s-20s, which has been a favored strategy since 2017. The trade is focused on the Brazilian market, with key insights provided by BNP Paribas strategists and economists.

Core Content

• Trade Idea: FRA Jan-21s-20s
• Current Status: The FRA has breached the $9.75%$ level, prompting a strategic decision to either take profits or extend the target further down.
• Position Taken: The trade was initiated in Q1 2018 when the FRA reached $9.50%$, and the position has been maintained with an allocation of USD 15,000 DV01.
• Year-to-Date P&L: The P&L for the FRA 21s20s strategy stands at USD 8.5 million.
• Strategic Dilemma: The team is weighing whether to take profits at $9.75%$ based on their factor model signals, or to extend the target due to a significant gap between the current market pricing and BNP Paribas economists' policy call, as well as light positioning from both local and foreign investors.

Key Messages

• The FRA Jan-21s-20s has been a core trade idea since 2017.
• The team took advantage of the Q1 2018 rally and continued to maintain the position over the last month and a half.
• The current allocation is USD 15,000 DV01, which is lower than the USD 50,000 DV01 suggested ahead of the first round of the Brazilian presidential elections.
• The strategy remains aligned with the economic outlook despite recent market movements.

Managing DI Allocations Ahead of Presidential Election

• The team will adjust suggested allocations in advance of the 28 October second round of the Brazilian presidential election.
• The trade idea is part of a broader strategy that includes increasing positions in DI FRA 20s21s receiver.
• The team continues to monitor the market closely, with the decision to maintain the current position based on the divergence between market pricing and economic forecasts.

Legal and Regulatory Notice

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Additional Notes

• The document includes legal disclaimers and risk warnings regarding the potential volatility and risks associated with the instruments discussed.
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