20180710-法国巴黎银行-Brazil_DI__Extending_again_the_target_of_the_FRA_Jan22s23s_9页_398kb

Summary of the Latin America Strategy Document

Core Content

This document outlines the current strategy and position in the DI (Direct Index) and FRA (Forward Rate Agreement) markets in Brazil, focusing on the extension of target rates and the management of risk through hedging.

DI Market Strategy

• FRA Jan22s23s:

  • The target rate was initially set at 13.92%.
  • The target was reached at 12.50%, and it was extended to 12.25%.
  • The target was further extended to 12.00% due to the belief that there is still potential for further gains.
  • The current PnL for this strategy is +167bp (basis points).

• FRA Jan20s21s:

  • The team holds a position with USD 40k DV01 in receivers.
  • The target rate for this FRA is 10.25%, with an entry point at 10.57%.
  • The position is maintained despite a reduction in the overall allocation.

• Total Allocation:

  • Combined allocation of both strategies is USD 40k DV01.
  • Previously, the allocation was USD 50k DV01 and reached a maximum of USD 70k DV01 one week ago.

Market Outlook

• The DI market has been dysfunctional over the past month.
• Prices have been significantly above the team's worst-case scenario.
• The team believes that panic is not the right response, as the risk-reward of receiving rates is still attractive.
• According to the model, there is still a substantial premium in the belly and long end of the curve.

Key Information

• Market Conditions: Despite worsening domestic and external scenarios, the team continues to seek positive pay-out opportunities.
• PnL Performance: The strategy has generated a positive PnL of +167bp so far.
• Hedging Strategy:
  • A USDBRL call spread (1x2) was entered at 4.00-4.40, with a notional amount of USD 100mn and USD 200mn, maturing in November 2018.
  • The PnL for the hedge strategy is USD 455k (0.65% of USD 70mn allocation).
  • The team has reduced the allocation in the hedge strategy in line with the reduction in the rates portfolio.

Additional Notes

• The BRL is noted as the currency with the highest margin for appreciation.

• The document includes complementary publications that support the strategy, such as:

  • "Brazil: Target reached for receivers (FRA Jan22s23s); what to do now?"
  • "Brazil; when prices get these levels, panic shouldn't be an option: receiving 22s23s at 13.92%"
  • "Brazil: COPOM in no rush to review strategy (Latam economics)"

• Charts and Tables:

  • Chart 1-2 and Table 1 are included to illustrate the DI market and the model's performance.
  • The table shows forward rates for different maturities and provides a detailed view of the market.

Legal and Regulatory Information

• The document is a marketing communication and not investment research.

• It may contain non-independent research and is subject to conflicts of interest.

• The document is not intended for retail investors and is for Professional Clients and Eligible Counterparties.

• It does not constitute an offer to sell or solicitation of an offer to buy.

• Confidentiality: The information is provided on a strictly confidential basis and may not be copied or distributed without prior written consent.

• Disclaimer:

  • No guarantees are made regarding the accuracy or completeness of the information.
  • Past performance is not indicative of future results.
  • The indicated prices are preliminary and not binding.
  • The document is subject to change and may be discontinued.

• Jurisdictional Disclosures:

  • The document includes important disclosures for United States, UK, France, Germany, Belgium, Ireland, Italy, and Netherlands.
  • These disclosures highlight regulatory compliance, conflicts of interest, and eligibility requirements for different regions.