20180703-法国巴黎银行-Brazil__Target_reached_for_receivers_（FRA_Jan22s23s）；what_to_do_now__9页_456kb

Summary of LATIN AMERICA STRATEGY Document

Core Content

This document outlines the current strategy for managing interest rate and currency exposure in the Latin American region, with a specific focus on Brazil. It discusses the decision to extend and adjust certain financial instruments in response to market conditions, particularly in the DI (Diário Oficial) rate environment. The document also includes legal and regulatory disclosures for various jurisdictions.

Main Points and Strategy Overview

• Market Conditions: The domestic and external scenarios have worsened, but this does not justify accepting unfounded prices or refraining from arbitrage opportunities when the market is stretched.
• Original Recommendation: Clients were advised to receive FRA (Forward Rate Agreements) for DI Jan22s23s at $13.92%$ (USD 10k DV01) and Jan20s21s at $10.57%$ (USD 60k DV01).
• Target Achieved: The target for FRA DI Jan22s23s was reached, prompting the decision to extend the position to $12.25%$.
• Adjustments Made:
  • Extended FRA Jan22s23s to $12.25%$, resulting in a PnL of +142bp.
  • Reduced allocation in FRA Jan20s21s to USD 40k DV01 at $10.53%$ (on-shore), maintaining the original target of $10.25%$.
  • Total allocation now stands at USD 50k DV01 (previously USD 70k DV01).

Key Insights and Outlook

• DI Market Dysfunction: The DI market has been trading in a dysfunctional manner over the last month, with prices significantly above worst-case scenarios.
• Risk Premium Adjustment: The increase in uncertainty should lead to a re-evaluation of risk premiums along the curve, but current levels are considered excessive.
• Model Analysis: According to internal models, there is still substantial premium in the belly and long end of the DI curve.
• Hedging Strategy: A USDBRL call spread 1x2 at 4.00-4.40 (USD 100mn and USD 200mn) maturing in November 2018 has been entered to hedge existing positions. The PnL so far is USD 680k (11bps of USD100mn allocation).

Legal and Regulatory Disclosures

• Non-Independent Research: The document is non-independent research and may be subject to conflicts of interest due to its relationship with sales and trading.
• Marketing Communication: It is considered a marketing communication under MiFID II and is not investment research.
• Confidentiality and Liability: The document is provided on a strictly confidential basis. BNPP and its affiliates disclaim any liability for the accuracy or completeness of the information or for any losses arising from its use.
• Jurisdictional Restrictions:
  • UK: Communicated by BNPP London Branch, which is authorized and supervised by the ECB, ACPR, and FCA.
  • France: Produced and/or distributed by BNPP SA and BNPP Arbitrage, both authorized by the ECB and ACPR.
  • Germany: Distributed by BNPP S.A. Niederlassung Deutschland, authorized by the ECB and ACPR.
  • Belgium: Distributed by BNPP Fortis SA/NV, authorized by the ECB and the National Bank of Belgium.
  • Ireland: Distributed by BNPP S.A., Dublin Branch, regulated in France by the ECB and ACPR.
  • Italy: Distributed by BNPP Succursale Italia, authorized by the ECB, ACPR, and CONSOB.
  • Netherlands: Distributed by BNPP Fortis SA/NV, Netherlands Branch, supervised by ECB, National Bank of Belgium, and AFM.
  • Portugal: Distributed by BNPP - Sucursal em Portugal, authorized by ECB, ACPR, and Banco de Portugal.
  • Spain: Distributed by BNPP S.A., S.E., supervised by ECB and ACPR, and subject to limited regulation by the Bank of Spain.
  • Switzerland: Intended solely for Qualified Investors, as defined by Swiss law, including regulated financial intermediaries, insurance institutions, and pension funds.

Additional Information

• Compliance and Use: The document is for informational purposes only and should not be relied upon as authoritative. It is not a prospectus or an offer to sell.
• Conflicts of Interest: BNPP may have financial interests in the entities mentioned, including acting as an advisor, manager, or underwriter.
• Performance Data: The document may include simulated performance data based on back-testing, which is for illustrative purposes only and not indicative of future results.
• ETF and Options Disclosures: For ETFs and options discussed, the document includes important risk disclosures and notes that these instruments are not suitable for all investors.

Conclusion

The strategy emphasizes disciplined risk management in a volatile market, with a focus on extending favorable positions and reducing exposure in others. The document serves as a guide for clients and is accompanied by comprehensive legal and compliance information to ensure proper understanding and use.