Investment Research — General Market Conditions
30 September 2013
Trade Recommendation Book profit on Jun’16 vs Jun’15 Euro$ futures The position was established on 28 August (link). The strategy was entered with a spread of 113bp and is closed today @ 96bp. Hence, we book a profit of 17bp on this trade. The position was opened due to the view that the expectations of the Fed were relatively hard priced and a historical high steepness 2-3 years out. It has benefited from the FOMC deciding not to taper and the general buoyant fixed income environment hereafter.
Repricing of the Fed... Pricing USD-OIS 1m swap 2,50%
2,00%
1,50%
1,00%
0,50%
The political situation in the US with budget negotiations getting close to the edge as well as the coming debt ceiling debate brings some uncertainty to the market, and we utilise the recent momentum in rate markets to lock in some profit. In our view, we see the trade’s risk reward as less attractive going forward, as the possibility of a last minute solution in the US Congress does exist and the reprising of the Fed has already taken place during the past 1½ weeks.
0,00% Sep13 Mar14 Sep14 Mar15 Sep15 Mar16 Sep16 Mar17 Current live
Source: Danske Bank Markets
... has flattened the forward curve 10bp
Performance in US money market flattener
Pre-Sep FOMC
Changes
0bp
-10bp -20bp -30bp -40bp -50bp -60bp Sep13 Mar14 Sep14 Mar15 Sep15 Mar16 Sep16 Mar17
Source: Danske Bank Markets
Source: Bloomberg
Senior Analyst Lars Tranberg Rasmussen +45 45 12 85 34
[email protected] Analyst Anders Vestergård Fischer +45 45 13 66 41
[email protected] Senior Analyst Peter Possing Andersen +45 45 13 70 19
[email protected]
Important disclosures and certifications are contained from page 3 of this report.
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30 September 2013
Instrument, currency and position Type Ccy Scaling Trade Idea 3 Vol USD ½ Buy 6M2Y, sell 6M5Y payerVol spike, 2/5 to steep 2 Swap USD-EUR ½ Rec 5Y5Y USD-EUR spread Elevated level Swap EUR ½ Rec 2y2y, Pay 15y15y Adding to position 1 Swap EUR ½ Rec 2y2y, Pay 15y15y Long-end steepener
Current strategies Risk Not. Dv01 USD55m/USD23m USD0k* EUR7.2m/USD10.2m EUR3.2k EUR 13.5m/EUR 3.2m EUR2.6k EUR13.4m/EUR3.0m EUR2.6k
Entry 58ticks 138bp 118bp 152bp
Now 41.5ticks 114bp 145bp 155bp
Key levels for position Add risk Loss Profit 116ticks -58ticks 160bp 180bp 75bp 97bp 210bp 118bp 97bp 210bp
Closed strategies during 2013 Risk measures
Instrument Scaling Trade Buy Jun'16, sell Jun'15 Euro$ ½ Sell 6m 5y payer, ATM+25bp ½
Open date 28-Aug-13 19-Jul-13 04-Sep-13 09-Jul-13
14
Type MM
Ccy USD
Idea MM curve to steep
13
Vol
EUR
12
Vol
USD
½
Sell 6m 10y straddle, ATM
Elevated vol
11
Vol
USD
½
Sell 3m 5y payer, ATM+15bp
10
Vol
EUR
½
-
Swap
EUR
½
9
Swap
EUR
8
Swap
EUR
P/L Bp/ticks 16.5bp 24.3bp 27.4bp 2.9bp
EUR, k 29.4 77.9 73.8 7.3
P/L Key dates Dv01 USD 6.3k
Key levels
Simple
Entry lvl Close lvl 113bp 96bp
Bp 17.0
EUR, k 78
72ticks 43ticks
29ticks
78
Open date 28-Aug-13
Close date 30-Sep-13
# Days 33
EUR27.8m
09-Sep-13
19-Sep-13
10
USD5.1m
28-Jun-13
19-Sep-13
83
510ticks 362ticks 148ticks
66
Elevated vol, elevated rates
USD 30.5m
09-Jul-13
17-Jul-13
8
81ticks 38.5ticks 42.5ticks
108
Sell 6m 5y payer, ATM
Fade sell-off - elevated vol
EUR 16.8m
25-Jun-13
09-Jul-13
14
119ticks 57ticks
62ticks
104
Rec 2y 1y EUR
Adding to position
EUR 45.4m
EUR 4.5k
13-Jun-13
20-Jun-13
7
0.925% 1.210%
-28.5
-128
½
Rec 2y 1y EUR
Attractive roll-down
EUR 45.4m
EUR 4.5k
04-Jun-13
20-Jun-13
16
1.050% 1.210%
½
Pay 2/5/10 Fly, 6m fwd
Steeper EUR currve
EUR 34.5m/28m/7.5m
EUR6.9k
08-Mar-13
13-Jun-13
97
Fade sell-off - elevated vol
Notional 250 contracts
Horizon 3-6M 3-12M 3-12M 3-12M
-16.0
-72
-23bp
-17bp
6.0
41.4
6bp
18.5bp
12.5
154
-
Swap
EUR
½
Pay 1y1y vs Rec 1y
Adding to position
EUR 121.9m/120.9m
EUR12.3k
02-May-13
30-May-13
28
7
Swap
EUR
½
Pay 1y1y vs Rec 1y
Steeper EONIA curve
EUR 121.9m/120.9m
EUR12.3k
10-Apr-13
30-May-13
50
10.25bp 17.8bp
6
Swap
EUR
½
Pay 5/15/30 Fly, 10Y tails
Long end steepener
EUR 4m/10.7m/8m
EUR3.4k
11-Jan-13
08-Mar-13
56
-15.5bp
5
Swap
EUR
½
Pay 5y5y/10y10y spread
Long end steepener
EUR22.8m/14.1m
EUR10.1k
08-Feb-13
21-Feb-13
13
39.5bp
4
ASW DEU-EUR
½
Buy Bund ASW
Risk-off hedge
EUR6.8k
07-Jan-13
28-Jan-13
21
19.4bp 25.4bp
3
Swap
EUR
½
Rec 3y1y
Attractive roll-down
EUR40.1m
EUR4.0k
10-Jan-13
28-Jan-13
18
1.195% 1.535%
2
Swap
EUR
½
Rec 3y1y, pay 2y1y
Carry with protection
EUR67.2m/66.9m
EUR6.7k
07-Dec-12
17-Jan-13
41
44bp
33.5bp
10.5
70
-
Swap
USD
½
Pay 10y10y
Adding to position
USD5.1m
EUR2.7k
25-Sep-12
21-Feb-13
149
3.40%
3.95%
55.0
150
1
Swap
USD
½
Pay 10y10y
New Fed regime
USD5.1m
EUR2.7k
14-Sep-12
07-Jan-13
115
3.63% 3.745%
11.5
32
Source: Danske Bank Markets
7.6
93
-3.5bp
12.0
40.8
49bp
9.5
96
6.0
40.8
-34.0
-133
Trade Recommendation
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Current and closed strategies in 2013: performance of closed trades in 2013 – hit ratio 86% on 14 trades
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Trade Recommendation
Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The authors of this research report are Lars Tranberg Rasmussen, Senior Analyst, Anders Vestergård Fischer, Analyst and Peter Possing Andersen, Senior Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the date of first publication.
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Trade Recommendation
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