20181029-法国巴黎银行-BRAZIL_DI_Strategy__Take_profits_on_receivers_in_the_long_end_9页_941kb

Brazil DI Strategy Summary

Core Content

This document outlines a trade idea related to the Brazilian DI (Discount Index) futures market, focusing on the decision to close long-held FRA (Forward Rate Agreement) receivers in the long end of the curve. The strategy was based on the analysis of term premium models, which indicated potential for further margin compression. The trade was initiated with the expectation of a rally in the DI curve, and the team took a profit-taking pause to reassess macroeconomic and policy developments following the Bolsonaro administration's potential impact on the market.

Main Points

• Trade Idea Closure: The team closed their trade idea to receive the FRA Jan-22s23s receivers with a P&L of 217bp. They also extended the target of the FRA Jan-20s21s three times over the last month.

• Market Performance: Since the beginning of September, the DI curve has rallied by 220bp (now at 270bp). This performance led the team to take a pause and reassess policy scenarios.

• Term Premium Model: The term premium model suggested that there was still room for margin compression in the long end of the curve. However, the team remains bullish on both rates and the Brazilian Real (BRL), holding positions directionally and in relative value.

• Profit Realization: The trade was closed with a P&L of 53bp, with the final closing price at 9.65%. The year-to-date P&L for the Brazil local rates strategy stands at USD9.1 million.

• Next Steps: The team will now assess the next cabinet, macro policy signals from the new administration, and continue to monitor their proprietary models for further insights.

Key Information

• Strategy Authors: The trade idea was developed by the Strategy & Economics team at BNP Paribas, with key contributors including Gabriel Gersztein (Global Head of Emerging Markets), Samuel Castro, Luca Maia, and Andre Digiacomo (FX & IR Latin America Strategy, Commodity Quant Strategy).

• Legal Disclaimer: The document is a marketing communication and not independent investment research. It is not intended to provide investment, financial, legal, or tax advice. The information is based on public sources and may not be accurate or complete.

• Confidentiality: The document is provided on a strictly confidential basis and should not be copied, reproduced, or distributed without prior written consent from BNP Paribas.

• Conflict of Interest: BNP Paribas may have financial interests in the securities or entities mentioned, and may engage in transactions that are inconsistent with the views expressed in the document, either for its own account or for clients.

• Performance Data: The document includes performance data based on back-testing and simulations, which are for illustrative purposes only and do not reflect actual market conditions or future results.

• Regulatory Context: The document is subject to various regulatory disclosures, including those for the United States, the UK, France, Germany, Belgium, Ireland, Italy, the Netherlands, Portugal, Spain, and Switzerland. These disclosures emphasize the need for professional investors and the potential risks involved in the transactions discussed.

Conclusion

The Brazil DI strategy team has taken a profit-taking pause after a significant rally in the DI curve, based on their term premium model. They remain bullish on the market and will continue to monitor developments closely, including the new administration's policy signals and the evolution of their models. The document serves as a summary of the trade execution and market outlook, with important legal and regulatory disclosures.