1、|TRADE IDEA 10/07/2019 1 TRADE IDEA|EM 10 July 2019 Please refer to important information and MAR disclosures at the end of this report Brazil:Take profits on short-end receivers;going into payers KEY MESSAGES The front end of the Brazilian curve was too steep to be true,but not anymore.With our Jul
2、-20sJan-22s flattener strategy reaching the projected level,we believe it is now time to lock in profits and explore other opportunities.We have also decided to increase the Jan-21sJan-25s flattener position in the DI curve,which is still 30bp away from target.As the short end of the curve is now tr
3、ading substantially below our models and the call for monetary policy from our economists,we are also entering into an outright payer position in April-20.Strategy:Pay DI April-20 at 5.61%;allocation:USD15,000 DV01;target:+30bp P&L;stop loss:15bp P&L.Strategy:Close DI Jul-20sJan-22s at 34bp spread w
4、ith a31bp profit(USD711,000);allocation:USD20,000 DV01 Strategy:Increase allocation in flattener Jan-21sJan-25sto USD25,000 DV01 from USD15,000 DV01 at 126bp(target and stop remain the same);P&L so far:+30bp.EM STRATEGY Table 1 and Fig.1:It seems too much in the short end Sources:Bloomberg LLP,BNP P
5、aribas;as of 11 July 2019 Samuel Castro,EM/FX&IR Latin America Strategy Luca Maia,EM/FX&IR Latin America Strategy Andre Digiacomo,EM/FX&IR Latin America Strategy Gabriel Gersztein,Global Head of Emerging Markets Strategy|Banco BNP Paribas Brasil S.A.Comments As our Jul-20/Jan-22 flattener strategy h
6、as reached the projected level,we believe it is time to lock in profits and explore other opportunities.We have also decided to increase our Jan-21sJan-25s flattener position in DI curve,which is still 30bp away from target.The trade aims at getting the most out of the lower credit risk we project f
7、or Brazil and the systemic global compression of rates,to which the local curve is not immune.We see the short end of the curve pricing for perfection with a more aggressive easing cycle than our models and economics team are projecting(Table 1 and Fig.1).This is why we are also entering into an out
8、right payer position in April-20.Links Brazil:Target reached to DI receivers;strategy from now on Brazil DI-Too steep to be true Brazil:DI receivers target reached;keep receiving Copom MeetingMeetingCumulativeBNPP CallBNPP Cumulative10-Jul-19000031-Jul-19-40-400018-Sep-19-31-70-25-2530-Oct-19-24-94-
9、25-5011-Dec-19-14-108-25-758-Jan-20-6-1140-7519-Feb-200-1140-7508-Apr-204-1100-7520-May-207-1030-758-Jul-2010-930-75(50)(35)(20)(5)10(150)(100)(50)050Jul-19Sep-19Dec-19Feb-20May-20Implied monetary policy(rhs,bp)BNPP Expected monetary policy(rhs,bp)Cummulative implied monetary policy(bp)BNPP Cummulat
10、ive expected monetary poly(bp)-45-33-21-9315Jul-19Jul-20Jul-21Jul-22Jul-23Implied monetary policy including longer tenors(bps)Legal Notice This document has been written by our Strategist and Economist teams within the BNP Paribas group of companies(collectively“BNPP”);it does not purport to be an e
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