20170418-法国巴黎银行-LATIN_AMERICA_STRATEGY__Brazil__DI_strategy_update_after_April_Copom_minutes_14页_346kb

Summary of BNP Paribas Brazil DI Strategy Update (April 2017)

Core Content

This document outlines the current DI (Direct Investment) strategy update for Brazil as of April 2017, produced by Banco BNP Paribas Brasil S.A. and led by Gabriel Gersztein, Head of FX & IR Latam Strategy. It includes the status of existing trades, model updates, and key strategy positions.

Key Points

1. Strategy Positioning

• Main Strategy: The strategy team is positioned in the "belly" of the DI curve.
• Reasoning: The Copom minutes reinforced the original call for a Selic rate of 8.00% by the end of 2017. The team believes that the belly of the curve offers better returns despite political risks, due to a higher-than-expected terminal Selic rate.
• Strategy Details:
  • Receive DI Jan-20: Allocation of USD15k DV01.
  • Flattening DI Jan-20/Jan-18: Allocation of USD30k DV01.
  • Stop Loss Adjustment: From +10bp to +25bp.
  • Carry: Positive in +16.5bp per month.

2. Historical Trade Performance

• Closed Trades since Q1 2016:
  • Receive DI Jan-18 closed on 26 January 2016 at +53bp.
  • Receive DI Jan-19 closed on 29 January 2016 at +44bp.
  • Receive DI Jan-19 closed on 22 February 2016 at +40bp.
  • Receive DI Jan-21 closed on 2 March 2016 at +40bp and +62bp (two parts).
  • Flattener DI Jan-17/Jan-21 closed on 29 March 2016 at +30bp.
  • Flattener DI Jan-19 against Jan-17 closed on 5 May 2016 at +57bp.
  • Receive DI Jan-19 closed on 28 September 2016 at +66bp (excluding flattener leg).
  • Receive DI Jan-23 closed on 24 January 2017 at +137bp.
• Total Profit: 478bp (basis points) from these trades.

3. Model Value Update

• Market vs. Model Values:

  • The model suggests that the long end of the curve (DI Jan-25) has the highest dislocation.
  • However, the team prefers the belly of the curve for better risk-adjusted returns.

• Model Table:

  Date	Market Rate	Model Rate	Market/Model Spread
  DI Jan-18	9.54%	9.35%	+19bp
  DI Jan-19	9.35%	9.07%	+28bp
  DI Jan-20	9.63%	9.06%	+57bp
  DI Jan-21	9.87%	9.58%	+29bp
  DI Jan-23	10.14%	9.70%	+44bp
  DI Jan-25	10.26%	9.25%	+101bp

• Chart Reference: Chart 1 is referenced to show the spread between market and model values.

4. Strategy Reinforcement

• The team reinforces its current strategies based on the updated model and macroeconomic scenarios.
• The focus remains on receiving DI Jan-20 and flattening DI Jan-20/Jan-18.

Key Information

• The document highlights the team's confidence in the Selic rate reaching 8.00% by the end of 2017.
• The carry from the belly of the curve is a significant factor in the strategy.
• The stop loss has been adjusted to +25bp to manage risk better.
• The total profit from closed trades since Q1 2016 is 478bp.
• The strategy is non-independent research and is considered a marketing communication under MiFID regulations.

Strategy Contacts

Legal Disclaimer

• The document is a marketing communication and not investment research.
• It is not intended to provide investment, tax, legal, or accounting advice.
• BNP Paribas may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• The information is based on public sources and may be subject to change.
• The indicated prices are for informational purposes only and not actual transaction terms.
• The document is confidential and may not be shared without prior written consent.

Important Disclosures

• The document may contain simulated performance data.
• Options and ETFs discussed are complex instruments with high risk.
• Convertibles securities may not be registered under US securities laws.
• The document is not a prospectus and does not constitute an offer to sell or purchase any securities.

Jurisdictional Information

• The document is distributed in various jurisdictions by BNP Paribas branches, with specific legal supervision and authorization details provided for each.
• It is intended for professional clients and eligible counterparties.
• The legal notices and disclosures vary by country and are provided to ensure compliance with local regulations.

Conclusion

The BNP Paribas Brazil DI strategy remains focused on the belly of the curve with a positive carry and a higher projected terminal Selic rate. The team has reinforced its positions based on updated models and macroeconomic indicators, and the document includes detailed trade history and legal disclaimers.