20181012-法国巴黎银行-Receive_EUR_1y_forward_5s10s30s_swap_fly_7页_954kb

Summary of the EUR Zone Trade Idea Document (12 October 2018)

Core Content

This document outlines a trade idea involving the EUR 1y forward 5s10s30s swap fly, which is currently at 15bp. It is presented as a strategic opportunity for investors in the context of G10 interest rates and market volatility.

Key Points

• Trade Idea:

  • Entry Point: At +15bp, with a possible addition on any move to 18bp.
  • Target: 5-7bp.
  • Stop-Loss: 21bp.
  • Roll: +1.7bp per 3 months.

• Market Context:

  • The new hawkish tone from the Fed has impacted risk assets, particularly the US equity indices, leading to increased volatility.
  • This volatility is expected to push 10-year yields lower in the near term, especially in Europe.
  • The end of the seasonal period for Bunds and more negative net cash over the next three weeks contribute to oversold conditions.

• Swap Fly Valuation:

  • The EUR 5s10s30s swap fly is currently at a high level of mispricing relative to the fitted value.
  • The observed swap fly is almost two standard deviations above the fitted value, similar to 2012 mispricing levels.
  • The swap fly is considered a cheap hedge against further volatility in risk assets.

• Risk-Reward Profile:

  • Receiving the swap fly is more attractive than an outright 10y swap position due to the high correlation between the swap fly and the 10y swap yield (around 54% since the ECB's PSPP program began).
  • The long-term correlation is lower than the 85% seen post-Lehman Brothers collapse in 2008.

• Scenarios for Fitted Values:

  • Scenario 1: Resumption of a bear market.
  • Scenario 2: Renewed weakness in equities.
  • Scenario 3: Steeper money market curve due to a hawkish ECB.
  • Under all scenarios, the current level of the swap fly remains above the new fitted values, indicating a safer position.

• Pension Fund Behavior:

  • The risk of pension funds increasing their demand for the 30y bucket is low, as their funding ratios have improved significantly.
  • As of 2018Q2, the estimated funding ratio for Dutch pension funds is around 108.3%, with a low percentage of funds below 105%.

Key Information

• The swap fly trade is based on the divergence between observed and fitted values, suggesting a potential mispricing.
• The trade is recommended for professional clients and eligible counterparties, and is not intended for retail investors.
• The document is a marketing communication and not investment research, as per MiFID II regulations.
• It contains no guarantees or warranties regarding the accuracy or completeness of the information provided.
• The trade idea is subject to change and may be discontinued at any time.
• The document is not a prospectus, advertisement, or public offering, and does not constitute investment advice.
• There are potential conflicts of interest due to BNPP's relationship with sales and marketing teams.
• The document may include performance data based on back-testing, which is not indicative of future results.
• It is important to consult with independent financial advisors before making any investment decisions.

Conclusion

The EUR 1y forward 5s10s30s swap fly is presented as a potentially profitable trade opportunity due to current mispricing and the expected impact of increased market volatility. The trade is considered a safe and attractive hedge, with a clear entry, target, and stop-loss level. Investors are advised to consider the risk-reward profile and to ensure they fully understand the terms and legal implications of the trade.