巴黎银行-新兴市场-宏观策略-巴西：DI接受目标实现-20190603-8页_469kb

EM STRATEGY Summary: Brazil DI Receivers Target Reached

Core Content

This document outlines the investment strategy and performance analysis of Brazil DI receivers and related positions within the context of emerging market (EM) rate strategies. The focus is on the current external environment, the impact of global interest rates on Brazil's DI (Direct Index) rates, and the rationale for maintaining or adjusting positions based on market conditions.

Key Points

• Position Adjustment: A partial profit was taken on the USD30,000 DV01 DI FRA Jan-22s23s receiver position by closing USD5,000 DV01 for a 75bp profit, while keeping the remaining USD10,000 DV01 in the portfolio. The current PnL is +104bp or USD2.9mn.

• External Environment: The current external environment is seen as favorable for receiving rates in select EM countries. This is attributed to declining global rates, particularly the UST 10y and US 5y5y forward real rates, which are near their lowest levels since September 2017.

• Fundamental High Yielders: High yielders with strong fundamentals are expected to benefit from the current rate environment. Brazil and Mexico are highlighted as particularly compelling due to the premium embedded in their rate curves.

• DI Curve Divergence: There is a significant divergence between the UST 2y6y and Brazil DI 2y6y slopes, which supports the strategy of positioning in a DI Jan21s25s flattener.

Strategy Details

• Target Reached: The target for the remaining DI FRA Jan-22s23s receiver position has been reached, prompting a decision to close part of the position and extend the rest for a new target of 8.20.

• PnL Performance: The PnL for the current position is +104bp or USD2.9mn, reflecting the strategy's success in capturing rate differentials.

Complementary Analysis

• UST Impact on DI: Analysis using data from 2010 to 2013 shows that UST 5y rates have a statistically significant impact on Brazil DI 5y rates, with a Granger causality up to three months at the 5% significance level.

• Impulse Response: A -10bp shock to UST 5y rates was applied to measure its effect on Brazil DI 5y rates, with all coefficients statistically significant at 5%.

• Rate Curve Comparison: The document provides a comparative analysis of rate curves across different EM countries and G10 currencies, including Brazil, Mexico, Chile, Colombia, South Africa, Poland, Czech Republic, Hungary, Russia, Korea, Thailand, China, Malaysia, United States, Eurozone, Canada, United Kingdom, Japan, Sweden, Australia, and New Zealand.

Historical Trades in Brazil

• Active Positions: The document lists several active trades in Brazil DI rates, including receivers of FRA (Forward Rate Agreements) and flattener strategies.

• PnL Overview: The cumulative PnL from closed trades since 2017 is USD19.57mn, with various trades showing positive and negative returns.

Disclaimer and Legal Information

• Non-Independent Research: The document is non-independent research and may be subject to conflicts of interest due to its interaction with sales and trading functions.

• Marketing Communication: It is classified as a marketing communication under MiFID II and is not intended as investment research.

• Confidentiality and Use: The information is provided on a confidential basis and should not be used or copied without prior written consent.

• Legal and Regulatory Considerations: The document contains information that may be subject to various legal and regulatory requirements, including disclosures for options, ETFs, and securities not registered under US laws. It is intended for professional clients and relevant persons only.

Conclusion

The strategy is based on the favorable external environment for EM rate receivers, particularly in Brazil, where the divergence between UST and DI curves provides a basis for positioning. The document reflects a mix of active and closed positions with a focus on capturing rate differentials and managing risk based on market conditions and statistical analysis.