20181016-法国巴黎银行-BRAZIL_DI_STRATEGY__TIME_TO_TAKE_A_PAUSE_AND_TAKE_PROFITS_8页_929kb

Summary of Brazil DI Strategy Trade Idea (16 October 2018)

Core Content

This document presents a trade idea related to the Brazil DI (Discount Index) strategy, specifically focusing on the FRA (Forward Rate Agreement) Jan-21s-20s. The strategy has been a top trade in Emerging Markets and Latin America since Q4 2017, and the current position reflects a strategic decision to take a pause and reassess policy scenarios following a significant rally.

Key Messages

• Top Trade: The FRA Jan-21s-20s has been the top trade in EM/Latam since Q4 2017.
• Performance: The strategy experienced a rally in Q1 2018, reaching approximately 9.50%.
• Current Allocation: The current DV01 (Dollar Value of 01 basis point) allocation is USD15,000, which is lower than the previously suggested USD50,000 DV01 before the first round of the presidential election.
• Target Extension: The target for this strategy was extended three times over the last month.
• Rally and Reassessment: After a rally of 220 basis points since the beginning of September, the strategy is now advised to take a pause and re-assess policy scenarios.
• Closing Position: The position was closed at 9.58%, resulting in a year-to-date P&L of USD8.8 million for the FRA 21s20s strategy.
• Factor Model Insight: According to the factor model, there is little margin for substantial compression, indicating limited further upside potential.

Strategy Context

The trade idea is part of a broader strategy for managing DI (Discount Index) allocations ahead of the Brazilian presidential election. The team involved includes:

• Gabriel Gersztein - Global Head of Emerging Markets
• Samuel Castro, Luca Maia, Andre Digiacomo - FX & IR Latin America Strategy, Commodity Quant Strategy

Market Data (Table)

Additional Trade Ideas

• FRA 20s21s: The FRA 20s21s breached 9.75%, indicating further extension of the target.
• Brazil DI: The target for the FRA receiver was reached, with a PnL of +217 basis points.

Legal and Regulatory Notice

• Non-Independent Research: This document is non-independent research and may be subject to conflicts of interest.
• Marketing Communication: It is a marketing communication under MiFID II and is not investment research.
• Confidentiality: The information is provided on a strictly confidential basis and may not be distributed without prior written consent.
• Disclaimer: BNPP does not provide investment, financial, legal, or tax advice. Past performance is not indicative of future results.
• Conflicts of Interest: BNPP may have financial interests in the issuers or entities mentioned, and may engage in transactions inconsistent with the views expressed in this document.

US Disclosures

• Options: Complex instruments with high risk, suitable only for sophisticated investors.
• ETFs: Carry risks including tracking error, currency, and geopolitical risks.
• Restricted Securities: Some securities may not be registered under US Securities Laws and are only available to QIBs or non-US persons.

Country-Specific Disclosures

• UK: Communicated by BNPP London Branch, authorized by ECB, ACPR, and Prudential Regulation Authority.
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• Spain: Distributed by BNPP S.A., S.E., supervised by ECB, ACPR, and Bank of Spain.
• Switzerland: Intended solely for Qualified Investors as defined by CISA and CISO.

Conclusion

The strategy has seen substantial gains and is now at a point where a pause is advised to reassess policy scenarios. The team recommends taking profits and adjusting the allocation based on current market conditions and factor model insights.