Investment Research
24 October 2013
Position Update USD rates: book profit on Euro$ fly Jun14/15/16 The position to be short the belly of June14/15/16 Euro$ was established on 4 October at -55.5bp (link). We close at -44bp. P/L is +11.5bp.
The belly has underperformed relative to the wings
The rationale behind the trade was to position for a re-steepening of the US money market curve with positive roll-down. However, given the relative richness of the belly at opening, we advocated that it could also perform in a rates down environment if Fed tapering and consequently rate hikes were pushed further out in the future. Following the resolution/postponement of the debt ceiling, rates have in general declined, as the markets discount a delay in tapering/hikes, and this week’s NFP release only added to that notion. This has led to a significant flattening of the money market curve and the position performed 11.5bp. We believe the position will now primarily perform with lower rates, unless rates rise sharply and the market again begins to discount a first rate hike as soon as end-2014. Hence, as we believe that risk-reward for being positioned for lower US rates is becoming less attractive, we now close down the fly. We only have one recommendation open now, which is to receive the 5Y5Y USD/EUR swap spread. We keep this position open for a target of 75bp (currently around 99bp).
Source: Danske Bank Markets
... due to flattening from the long end of the money market curve
See overview of open trades and performance in 2013 overleaf.
Source: Danske Bank Markets
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.
www.danskeresearch.com
24 October 2013
Instrument, currency and position Type Ccy Scaling Trade Idea 1 Swap USD-EUR ½ Rec 5Y5Y USD-EUR spread Elevated level
Current strategies Risk Not. Dv01 EUR7.2m/USD10.2m EUR3.2k
Ccy USD
16
Vol
USD
½
Buy 6M2Y, sell 6M5Y payer
Vol spike, 2/5 to steep
-
Swap
EUR
½
Red 2y2y, Pay 15y15y
Adding to position
15
Swap
EUR
½
Red 2y2y, Pay 15y15y
Long-end steepener
14
MM
USD
½
Buy Jun'16, sell Jun'15 Euro$
MM curve to steep
13
Vol
EUR
½
Sell 6m 5y payer, ATM+25bp
Fade sell-off - elevated vol
12
Vol
USD
½
Sell 6m 10y straddle, ATM
Elevated vol
11
Vol
USD
½
Sell 3m 5y payer, ATM+15bp
Elevated vol, elevated rates
USD 30.5m
10
Vol
EUR
½
Sell 6m 5y payer, ATM
Fade sell-off - elevated vol
EUR 16.8m
-
Swap
EUR
½
Rec 2y 1y EUR
Adding to position
EUR 45.4m
EUR 4.5k
9
Swap
EUR
½
Rec 2y 1y EUR
Attractive roll-down
EUR 45.4m
8
Swap
EUR
½
Pay 2/5/10 Fly, 6m fwd
Steeper EUR currve
EUR 34.5m/28m/7.5m
-
Swap
EUR
½
Pay 1y1y vs Rec 1y
Adding to position
7
Swap
EUR
½
Pay 1y1y vs Rec 1y
Steeper EONIA curve
6
Swap
EUR
½
Pay 5/15/30 Fly, 10Y tails
Long end steepener
5
Swap
EUR
½
Pay 5y5y/10y10y spread
Long end steepener
4
ASW DEU-EUR
½
Buy Bund ASW
Risk-off hedge
3
Swap
EUR
½
Rec 3y1y
Attractive roll-down
2
Swap
EUR
½
Rec 3y1y, pay 2y1y
Carry with protection
-
Swap
USD
½
Pay 10y10y
Adding to position
1
Swap
USD
½
Pay 10y10y
New Fed regime
Source: Danske Bank Markets
Now 99bp
Idea Rates up with positive roll
Notional 250/500/250 contracts
Key levels for position Add risk Loss Profit 123bp 75bp
Key dates
Type MM
17
Entry 138bp
Closed strategies during 2013 Risk measures
Instrument Scaling Trade ½ Buy the Jun 14/15/16 Euro$
Open date 19-Jul-13
# Days 20
P/L Bp/ticks EUR, k 38.7bp 123.8
Key levels
P/L
Dv01 USD6.1k
Open date 04-Oct-13
USD55m/USD23m
USD0k*
28-Aug-13 18-Oct-13
51
58.ticks 29.ticks
29.ticks
50
EUR 13.5m/EUR 3.2m
EUR2.6k
04-Sep-13 02-Oct-13
28
118bp
146bp
27.8bp
72
EUR13.4m/EUR3.0m
EUR2.6k
09-Jul-13
02-Oct-13
85
152bp
156bp
3.5bp
9
250 contracts
USD 6.3k
28-Aug-13 30-Sep-13
33
113bp
96bp
17.0bp
78
EUR27.8m
09-Sep-13 19-Sep-13
10
72ticks
43ticks
29ticks
78
USD5.1m
28-Jun-13 19-Sep-13
83
510ticks 362ticks 148ticks
66
17-Jul-13
8
81ticks 38.5ticks 42.5ticks
108
25-Jun-13
09-Jul-13
14
62ticks
104
13-Jun-13
20-Jun-13
7
0.925% 1.210% -28.5bp
-128
EUR 4.5k
04-Jun-13
20-Jun-13
16
1.050% 1.210% -16.0bp
-72
EUR6.9k
08-Mar-13 13-Jun-13
97
-23bp
-17bp
6.0bp
41
EUR 121.9m/120.9m
EUR12.3k
02-May-13 30-May-13
28
6bp
18.5bp
12.5bp
154
EUR 121.9m/120.9m
EUR12.3k
10-Apr-13 30-May-13
50
10.25bp 17.8bp
7.6bp
93
EUR 4m/10.7m/8m
EUR3.4k
11-Jan-13 08-Mar-13
56
-15.5bp
-3.5bp
12.0bp
41
EUR22.8m/14.1m
EUR10.1k
08-Feb-13 21-Feb-13
13
39.5bp
49bp
9.5bp
96
EUR6.8k
07-Jan-13
28-Jan-13
21
19.4bp
25.4bp
6.0bp
EUR40.1m
EUR4.0k
10-Jan-13
28-Jan-13
18
1.195% 1.535% -34.0bp
EUR67.2m/66.9m
EUR6.7k
07-Dec-12 17-Jan-13
41
44bp
33.5bp
10.5bp
70
USD5.1m
EUR2.7k
25-Sep-12 21-Feb-13
149
3.40%
3.95%
55.0bp
150
USD5.1m
EUR2.7k
14-Sep-12 07-Jan-13
115
3.63%
3.745%
11.5bp
32
09-Jul-13
Close date 24-Oct-13
Horizon 3-12M
Entry lvl Close lvl Bp/ticks -55.5bp -44.0bp 11.5bp
119ticks 57ticks
EUR, k 52
41 -133
Position Update
2|
Overview of trades (performance of closed trades in 2013 – hit ratio 88% on 17 trades)
www.danskeresearch.com
Position Update
Disclosures 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 a 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.
General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) (‘Relevant Financial Instruments’). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States.
3|
24 October 2013
www.danskeresearch.com
Position Update
This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior written consent.
Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to ‘U.S. institutional investors’ as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to ‘U.S. institutional investors’. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements of a non-U.S. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in nonU.S. financial instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission.
4|
24 October 2013
www.danskeresearch.com
