巴黎银行-拉美-宏观经济-市场抑价放缓周期：这一次没有什么不同-20180315-10页_428kb

Summary of "LATIN AMERICA STRATEGY" - Brazil Market Analysis

Core Content

This document, produced by Banco BNP Paribas Brasil S.A., provides an analysis of the Brazilian DI (Diretório Índice) curve and its implications for monetary policy expectations and trading strategies. It outlines the historical underpricing of easing monetary policy cycles and highlights the current market positioning in the context of the ongoing easing cycle.

Main Findings

• Historical Underpricing of Easing Cycles:

  • In the past nine monetary policy cycles since 2004, the market and economists consistently underestimated the size of easing cycles.
  • In three specific cycles, the average underestimation was 363 basis points (bps).
  • Even after three monetary policy meetings, the DI curve implied a terminal Selic rate that was ~400 bps lower than the actual rate in 2005 and ~225 bps lower in 2011.

• Current Easing Cycle:

  • Market and economists had expected an easing of ~350 bps.
  • The monetary authority has actually cut the Selic rate by 750 bps.
  • The bulk of the premium is currently located in the belly of the DI curve, specifically the Jan-20/Jan-21 FRA.
  • The 9.75% target is expected to be reached soon, but the curve still has room for further declines.

• Trading Strategy:

  • The strategy is based on factor and term premium models.
  • A receiving bias is maintained in DI trades due to the historical pattern of underpricing.
  • The Jan-20/Jan-21 FRA is a key focus, with an ambitious target to halve the allocation at +64bp profit.

Key Information

• Market Premium Location:

  • The belly of the DI curve is where the majority of the premium is currently located.
  • The short-end of the curve is still underpriced, as seen in the Focus survey and short-end FRA positions.

• Performance:

  • Total P&L from closed trades since Q1 2016 is +632 bps.
  • The hit ratio is 73%, indicating a relatively successful strategy based on these expectations.

• Data Sources:

  • The analysis uses consensus expectations (Focus survey) and DI curve term structure.
  • Historical data is used to compare ex-ante expectations with ex-post outcomes.

Tables Summary

• Average Underestimation:
  • Priced-in for whole cycle: 429 bps
  • Priced-in for 6m: 135 bps
  • Priced-in for 1y: 301 bps
  • Priced-in for 1.5y: 333 bps

Strategy Highlights

• DI FRA Jan-20/Jan-21:

  • Current position: Receive.
  • P&L so far: +70 bps.
  • Target: 9.75%.
  • Strategy: Transform the current flattener into a FRA.

• Key Positions:

  • Receive DI Jan-23: +36 bps (closed on 12 Jan 2018).
  • Receive DI Jan-19: +28 bps (closed on 12 Dec 2017).
  • Receive DI Jan-25: +57 bps (closed on 21 Sep 2017).
  • Pay DI Jan-21: -78 bps (closed on 8 Jul 2016).
  • Receive DI Jan-19: +66 bps (closed on 28 Sep 2016).

Legal and Compliance Notes

• The document is a marketing communication and not independent research.
• It is intended for Relevant Persons (Professional Clients and Eligible Counterparties).
• It does not constitute an investment recommendation or financial advice.
• Indicative prices are based on internal models and may vary significantly.
• Conflicts of interest may exist due to BNPP's involvement in trading, underwriting, or advisory services.
• The document is not a prospectus and is subject to change.
• Performance data is based on back-testing and may not reflect real-world conditions.
• Options and ETFs mentioned are complex instruments with high risk.
• U.S. and UK disclosures apply, emphasizing that the document is not suitable for all investors and may not be available to all jurisdictions.

Conclusion

The analysis reinforces the idea that the market tends to underprice easing cycles, which has led to a receiving bias in DI trades. The current cycle is no exception, with the DI curve and Focus survey still underestimating the potential rate cuts. The strategy remains focused on capturing the premium in the belly of the curve and targeting 9.75% as the terminal Selic rate. The document serves as a guide for trading decisions and is not intended as investment advice.