20181018-法国巴黎银行-BRAZIL_STRATEGY__TERM_PREMIUM_IS_STILL_THERE_8页_406kb

Summary of "BRAZIL STRATEGY: TERM PREMIUM IS STILL THERE"

Core Content

This document outlines a trading strategy for the Brazilian DI (Discount Instrument) curve, focusing on capitalizing on the term premium in the interest rate market. The strategy is part of the FX & IR Latin America Strategy and Commodity Quant Strategy by BNP Paribas Brasil S.A. The key message is that the term premium remains substantial and is not significantly affected by the outcome of elections, suggesting that it is a stable and profitable market condition.

Main Views

• Current Positioning: The strategy has been positioned in the short end and belly of the curve (FRAs Jan-20s21s and FRA Jan-22s23s receivers).

• Strategy Adjustment: It is now recommended to slowly extend duration to capture the term premium.

• Term Premium Model: The model indicates that the long-end of the curve has more room to compress, which presents a potential opportunity for profit.

• Specific Strategy Details:

  • Receive: Jan-25
  • Initial Allocation: USD10,000 DV01 (may be increased based on market conditions)
  • Price: 10.18%
  • Initial Target: 9.58%
  • Stop-Loss: 11.00%
  • Carry + Roll-Down: 7 basis points (bp) positive per month

• Performance: Year-to-date (YTD) profit from the DI strategy is USD 9.8 million, highlighting the effectiveness of the strategy so far.

Key Information

• The term premium of the DI curve is still well above average, as illustrated in Figures 1 and 2.
• The document includes important legal disclaimers and disclosures regarding:
  • Non-independent research and its marketing communication nature.
  • Conflicts of interest due to BNPP's involvement in sales, trading, and investment banking activities.
  • Risk warnings related to options, ETFs, and convertible securities.
  • Regulatory information for various jurisdictions, including the UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, and Switzerland.

Regulatory Context

• The document is non-independent research under MiFID II and is intended for Relevant Persons, such as Professional Clients and Eligible Counterparties.
• It is not investment advice and does not constitute a prospectus or public offering.
• Confidentiality is emphasized, with the condition that the document may not be distributed or copied without prior written consent.

Legal Notice Highlights

• No guarantee of accuracy or completeness of the information provided.
• No liability is accepted for any losses arising from reliance on the document.
• Indicative prices are provided for informational purposes only and do not represent actual transaction terms.
• Back-testing results are included, but are not indicative of future performance.
• Disclosure of potential conflicts of interest is provided, noting that BNPP may have financial interests in the issuers or may act as an Authorized Participant, market maker, or adviser in relation to the products discussed.

Risk Factors

• The strategy involves high risk, including market volatility, counterparty risk, credit risk, and liquidity risk.
• Options and ETFs are highlighted as complex instruments that may not be suitable for all investors.
• Restricted securities may be involved, which are only available to Qualified Institutional Buyers (QIBs) or non-US persons under applicable regulations.

Conclusion

The strategy aims to benefit from the persistent term premium in the Brazilian DI curve, with a focus on extending duration to capture further gains. The document provides a detailed analysis of the market conditions, a clear trading plan, and extensive legal and regulatory disclosures to ensure compliance and transparency.