HALISTER1: BCB May Act More Aggressively If BRL Keeps Plunging, CA Says

BCB May Act More Aggressively If BRL Keeps Plunging, CA Says

(Bloomberg) -- “The BCB rhetoric is all about curbing volatility,” Vladimir Caramaschi, chief strategist at CA Indosuez, says in a phone interview.
  • “Remember that BCB discourse about the size of its FX reserves? This could be a good moment to reduce it”
    • “BCB has a lot of ammunition”
    • High volatility diminishes the odds that BCB will boost the pace of rate cuts to 50bps from 25bps
    • Liquidity may be reduced today amid U.S. Veterans Day holiday, potentially helping boost volatility
    • Brazil’s deficit makes the country vulnerable to external financial conditions after the market is done reacting to the initial news of Donald Trump’s election as U.S. president
    • U.S. yield curve pressured by Trump fiscal plans
  • NOTE: BRL drops a 3rd day following EMFX rout even after BCB announced FX swaps rollover auction for today
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Vladimir Caramaschi (Credit Agricole Brasil SA DTVM/Brazil)

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UUID: 7947283

HALISTER1: USD Swap Spreads Widen as MBS Convexity-Hedging Returns: MS

USD Swap Spreads Widen as MBS Convexity-Hedging Returns: MS

(Bloomberg) -- Mortgage-related paying helped widen swap spreads into yesterday’s early jump, as MBS current coupon yields continue to rise, writes Morgan Stanley in a client note ** Current coupons MBS has risen ~30bps over past three sessions to 2.84% as of yesterday’s close
  • Nomura analysts write in a note that it’s clear some recent convexity-forced duration shedding has been a factor into recent selloff
    • They estimate mortgage servicers sold ~$20b of 10y UST equivalent of duration to rebalance, due to rates sell- off that has already occurred over the past month, judging by the behavior of MBS, rates and swap spreads
  • U.S. 10y swap spreads widened as much as 4bps yesterday, before almost entirely erasing the move
  • NOTE: A rise mortgage rates reduces the amount of mortgage- borrowers that are likely to refinance, this acts to extend MBS duration, as prepay rates are revised lower
    • As a result of extended MBS duration, those portfolios who wish to main a steady duration target, will offset this via shedding duration through paying in USD swaps
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
MS US (Morgan Stanley)

Topics
To Be Announced Securities

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HALISTER1: AUCTION PREVIEW: BTP Volatility a Concern, Offers Value vs Spain

AUCTION PREVIEW: BTP Volatility a Concern, Offers Value vs Spain

(Bloomberg) -- Italy to sell 0.05% 10/2019, 0.65% 10/2023, 2.70% 03/2047, 5.0% 09/2040 for a combined EU5.25-7.25b at 11am CET.
  • Some apprehension given rising volatility, S&P ratings review; supportive is a lack of supply into year-end, carry in shorter bonds and valuations vs Spain
  • Commerzbank (David Schnautz)
    • Auction takes place ahead of important S&P review, may make them more difficult in an already challenging market environment
    • Positive that these bonds should not face more supply in 2016 as Italy is expected to cancel Dec. 13 auction
  • BBVA (Jaime Costero)
    • 3Y benchmark has become “very rich” in repo market since initially issued in mid-October; in terms of yield it has traded mostly in line with peers; attractive pick-up vs 3y Spain at ~23bps
    • 10y issue has cheapened on the 05/2023-10/2023-03/2024 fly, by ~7bps; also offers good pick up vs SPGBs
    • 2047 issue is rich on repo, however investor appetite for duration has decreased over the last few weeks
  • Mizuho (Antoine Bouvet)
    • 3Y yields have risen to levels that would normally attract carry demand, but rising volatility and prospect of the referendum has prevented aggressive investor buying
    • Steepening of the 03/2023-10/2023 roll offers a good concession ahead of the sale, also like the sector on the wider curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Antoine Bouvet (Mizuho Financial Group Inc)
David Schnautz (Commerzbank AG)
Jaime Costero (Banco Bilbao Vizcaya Argentaria SA)

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UUID: 7947283

HALISTER: Pimco Ends Bleeding After Three Years as Allianz Sees Turnaround

Pimco Ends Bleeding After Three Years as Allianz Sees Turnaround

Alert: HALISTER
Source: BN (Bloomberg News)

Tickers
ALV GR (Allianz SE)
PTTRX US (PIMCO Total Return Fund)

People
Dieter Wemmer (Allianz SE)
Emmanuel Roman (Pacific Investment Management Co LLC)
William Gross (Janus Capital Management LLC)

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UUID: 7947283

HALISTER1: Buy USD 2y5y ATM Straddles With Vol Low Relative to Forward: BNP

Buy USD 2y5y ATM Straddles With Vol Low Relative to Forward: BNP

(Bloomberg) -- While the U.S. yield curve has steepened most dramatically between 2s10s and 2s30s, it is 2y5y bp vol which offers the more attractive entry point, BNP Paribas strategist Timothy High writes in a client note.
  • USD 2y5y implied volatility should correct from cheap levels to the pre-Brexit regime and begin trading with a positive beta to the forward rate
  • Buy USD 2y5y ATMF straddles at 82.5bp (411c forward premium), target 102.5bp, stop 75bp, carry -1.75bp/1-month
  • 2y5y bp vol is low relative to the 2y5y forward rate
  • Fiscal stimulus, if likely to be enacted, could result in a quicker rate-hike tightening cycle than was expected prior to Trump’s election
  • Similar to the cheapness of 2y5y bp vol to the 2y5y forward rate, the 2y5y/2y10y bp vol ratio is at a 5%-7% low to the pre-Brexit regression line
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Timothy High (BNP Paribas SA)

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UUID: 7947283