GLOBAL INVESTMENT STRATEGY, EXECUTION AND RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS

This marketing was prepared by James Rice, a consultant with Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission's Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.

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Italy 20y vs 10y and 30y

We just saw the cheapening in Italy 20y (MAR41) as the syndicate priced the new Btps Green Apr45

We prefer the old 20y.. Mar40

Buy Btps Mar2040
vs Sell Btps Apr31 and Btps Sep51

Weighted (as per expected var): -0.3 / +1 / -0.7

Here's how -10y +20y -30y looks on History… - using the older higher coupon Mar40, which have better carry and cash-flow value

2 * (yield[BTPS 3.1 03/01/40 Govt]-0.3*yield[BTPS 0.9 04/01/31 Govt]-0.7*yield[BTPS 1.7 09/01/51 Govt])*100

Looking at Cash-flow discounted, Italian Anomalies here's how we see those bonds

Here's how we see Low Coupon Btps on Z-Spread vs Spain (Benchmark) as the Baseline on Z

Showing Mar41 but we believe Mar 40 to offer value relatively

Let me know any thoughts or questions

Best

James & Will

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

European RV, James & Will at Astor Ridge

A tough week – one that saw a structural shift in the Bond markets – and most pointedly an increase in curvature. With a new 15y coming in Germany next week – Dbr Mar36 - the street got caught very long the old 15yr Dbr Mar35

By way of illustration..

Long Dbr 35s

vs Short RX (feb30) and Short UB (aug46)
– curvature was added which we can see on this graph

200 * (YIELD[DBR 0 05/15/35 Corp] - 0.5 * YIELD[DBR 0 02/15/30 Corp] - 0.5 * YIELD[DBR 2.5 08/15/46 Corp])

And this was reflected in the other structures in European Curves as bullets sagged vs wings

Up until Friday the bonds were adding curvature more rapidly than the swap curve!!!!

SP210 is the code for a BOND vs Matched Maturity Swap

This index shows the same fly but with swap hedges – it’s rv is pure bond anomaly and really doesn’t move much
200 * (SP210[DBR 0 05/15/35 Corp] - 0.5 * SP210[DBR 0 02/15/30 Corp] - 0.5 * SP210[DBR 2.5 08/15/46 Corp])

So going forward there are two takeaways

firstly that we look for ‘edge’ vs swaps as well as in yield space and vs a fitted curve.

That both on History and in terms of absolute value our structures hold value

For example looking at the fitted German Swap Spreads (Using Z-spread) to have a better analysis of coupon differences or even stripping with a Par Curve build

Here’s how my anomaly fitted Z-spread curve looks for Germany…

Secondly we need to think about how to hedge out the effect of steeper (or flatter curves) on structures that we might normally view on a 1/2/1 weighting.

Assuming anomaly value is distinct from generic curve moves, then we can use the fitted curve to determine our weightings so that they are more robust in changes of curve slope

Consider French 10s/20s/30s
Fitted curve yields

FRTR 0.75 05/25/52	25-May-52	0.735
FRTR 0.5 05/25/40	25-May-40	0.442
FRTR 0 11/25/30	25-Nov-30	-0.049

10s20s is 49.1 basis points
10s30s is 78.4 basis points

In this case we would expect slope of 10s20s to be expressed as the percentage of 10s30s

And it’s roughly 63 %

If 10s30s steepened by 10bp we would see curvature as unchanged IF 10s20s steepened by 6.3bp –
If our hedging captures that, we reduce var and capture the true value of the anomalies

Now we can compare two versions of Frances 10s20s30s

1) 50/50 weighted: 200 * (YIELD[FRTR 0.5 05/25/40 Corp] - 0.5 * YIELD[FRTR 0 11/25/30 Corp] - 0.5 * YIELD[FRTR 0.75 05/25/52 Corp])

2) 37/63 weighted (fitted curve shape): 200 * (YIELD[FRTR 0.5 05/25/40 Corp] - 0.37 * YIELD[FRTR 0 11/25/30 Corp] - 0.63 * YIELD[FRTR 0.75 05/25/52 Corp])

So the second expression suffered less Var as the curve slope changed – reaching only 3bp from the mean under duress , rather than 6bp

and this mechanism can be employed Euro, UK, US all markets
with the caveat that it generally requires monotonic curves –

‘After removing anomaly value, bonds track the fitted curve and it’s relative shape’

And this does not require constant rebalancing unless the curve dramatically changes its curvature, but that would be the same if we 50/50 weighted our structures too

For reference, French fitted curve – Yield (IRR) no cash-flow discounting or Zero Rates employed

Looking ahead

New German 15y coming next week - €3bln Mar36 on Wednesday
The German 15y Mar36 was priced at +6bp / -4.25bp in the street on Friday – that’s gonna be a really cheap point on the 15y – the 2035s have been offered only in the street and are close to the bottom vs contract wings. The level of spread means 36s will be cheap and that could cheapen every core and semi core issue in that sector – it’s starting to look pretty good already and therefore it makes Nether 33s, Ragb 34s and 37s, Finland 31s and Ireland 31s and 34s look rich

Here’s how I see German Z-spreads vs a smoothed out curve – Germany only

Strategy
I think we want to come out of next week with -Feb30 (RX CTD for Mar & June), Long Mar35 or Mar36 (if they are cheap enough) & Short Dbr 42s

Here’s history on

Long Dbr 35s

vs short Feb30 and short Dbr 42s

Again, we’ve used our weightings of the shape of the fitted curve (40/60)

200 * (YIELD[DBR 0 05/15/35 Corp] - 0.4 * YIELD[DBR 0 02/15/30 Corp] - 0.6 * YIELD[DBR 3.25 07/04/42 Corp])

The German 15y Mar36 was priced at +6bp / -4.25bp in the street on Friday – that’s gonna be a really cheap point on the 15y – the 2035s have been offered only in the street and are close to the bottom vs contract wings. The level of spread means 36s will be cheap and that could give us a chance to get a really cheap new issue vs Feb30 (which stay contract CTD into June) & Dbr 2042s ,which starts to roll up the value curve from an expensive point

Austria 2031s tap (along with 2024s) €1,4bln for the two issues – on Tuesday

Ragb 2030s looking too cheap – buy as on spread vs Ragb2029 OR buy as a credit vs France (French supply coming on Thursday)

The heavy selling in Ragb 2031s has actually adversely impacted the Ragb30s more than the the 31s

29s30s too steep..
-Ragb 2029 +Ragb 2030
vs
10% of +Back month Bobl (dbr feb26) / -old 15y Germany (dbr 34)

It’s only a 10% hedge and so friction not too severe – I have real sympathy with the hedge too – back month OEM1 Ctd, feb 26 looks to have cheapened. On Z, the Dbr 34s look rich vs the forthcoming 2036 issue and the existing curve

Risks
The thing that could steepen Austria is the forthcoming French supply in Nov30 – but to me, there’s some buffer in the Austrian slope to counter that – Austria as a better credit should trade flatter as it does in a very exaggerated way in the long end

Cix:
100 * ((YIELD[RAGB 0 02/20/30 Corp] - YIELD[RAGB 0.5 02/20/29 Corp]) - 0.1 * (YIELD[DBR 4.75 07/04/34 Corp] - YIELD[DBR 0.5 02/15/26 Corp]))

Graph:

We’ve also looked at – Ragb34 – Ragb 30s vs Ragb 34s is a nice steepener coming out of Tuesday and going into Wednesday’s German supply

As a credit

I like France Nov30 into Ragb Feb30 at anything better than -9bp

Currently -9.8 bp
Range: -13.7 bp / -8.3 bp

At which point on Z it would be -4.25bp
Graph of Z-Spread History, France Nov30 into Ragb Feb30

We’re also looking at another small anomaly that should have a quick 2.5bp of normalisation

Sell Nether 26s to buy Nether 2027s

Yield Spread

& vs a hedge of 10% +June Obl / -RX
100 * ((YIELD[NETHER 0 01/15/27 Corp] - YIELD[NETHER 0.5 07/15/26 Corp]) - 0.1 * (YIELD[DBR 0 02/15/30 Corp] - YIELD[DBR 0.5 02/15/26 Corp]))

Target +3.25 bp to get this on with some form of curve hedge for mean reversion to +2bp to be consistent with the curve

As always

Have a good week

James & Will

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

This marketing was prepared by James Rice, a consultant with Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

The week ahead - European RV, James & Will at Astor Ridge

                Kalyan and Team – some thoughts on the week ahead in RV

                Looking at your structure +35s -39s +46s,
                We saw curvature added to the 15y and 20y substantially as global curves edge towards some sort of paradigm shift from last year’s modality

Although the street was caught Long 35s – this actually worked in favour of your trade as it dragged all the other 15 -20y paper out and essentially you have been short a bullet and long wings, which as a theme worked

By way of illustration..

Long Dbr 35s

vs Short RX (feb30) and Short UB (aug46)
– curvature was added
200 * (YIELD[DBR 0 05/15/35 Corp] - 0.5 * YIELD[DBR 0 02/15/30 Corp] - 0.5 * YIELD[DBR 2.5 08/15/46 Corp])

I think we’re getting close to the bottom so I think it’s definitely time to take the trade off – or better still mutate it into something that keeps yielding value…

Here’s how my anomaly fitted Z-spread curve looks for Germany…

Strategy
I think we want to come out of next week with -Feb30 (RX CTD for Mar & June), Long Mar35 or Mar36 (if they are cheap enough) & Short Dbr 39s and flat the 46s

Currently your risk is approx:

Dbr 35s: +53k
Dbr 39s: -106k
Dbr 46d: +53k

And I think the right expected var weighting for
-feb30 +dbr35s -dbr39s is
-0.33 / +1 / -0.67
So basically twice the risk in the back leg as it is about half as volatile

Here’s how that fly has performed…
200 * (YIELD[DBR 0 05/15/35 Corp] - 0.33 * YIELD[DBR 0 02/15/30 Corp] - 0.67 * YIELD[DBR 4.25 07/04/39 Corp])

So assuming we don’t waste liquidity trying to get the 39s back then we leave that at -107k position

Then our final risk should be something like

Dbr 30s: -53k (new position)

Dbr 35s: 160k (more)

Dbr 39s: -107k unchanged

finally the difference between that end state and where we are now means we will

Sell Dbr 30s: -53k
Buy additional Dbr 35s OR Dbr36s: 106k
Sell Dbr 46s: -53k

So actually this makes us a buyer of that very first fly at the top of the message – right on the all time cheap as we come into supply next week – furthermore – if you like the spread of the 36s relatively we can supplant 2035s with 2036s instead - Street had 2036s vs 2035s spread at +6bp / -4.25bp vs the 2035s on Friday. I see +4.5bp as decent value to both the 35s and the wider curve

So once again – thanks for bearing through on this trade – Will and I appreciate your working with us on this one – but I think we can mutate it into something even better – as per the first chart

Other stuff!!!...
Ragb 29s30s flattener

Austria 2031s tap (along with 2024s) €1,4bln for the two issues – on Tuesday

Ragb 2030s looking too cheap – buy as on spread vs Ragb2029 OR buy as a credit vs France (French supply coming on Thursday)

The heavy selling in Ragb 2031s has actually adversely impacted the Ragb30s more than the 2031s

29s30s too steep..
Sell Ragb 2029 & Buy Ragb 2030
vs
10% of +Back month Buy Bobl (dbr feb26) / Sell old 15y Germany (dbr 34)

It’s only a 10% hedge and so friction not too severe – I have real sympathy with the hedge too – back month OEM1 Ctd, Dbr Feb 26 looks to have cheapened. On Z, the Dbr 34s look rich vs the forthcoming 2036 issue and the existing curve

Cix:
100 * ((YIELD[RAGB 0 02/20/30 Corp] - YIELD[RAGB 0.5 02/20/29 Corp]) - 0.1 * (YIELD[DBR 4.75 07/04/34 Corp] - YIELD[DBR 0.5 02/15/26 Corp]))

Graph:

We’ve also looked at – Ragb34 – Ragb 30s vs Ragb 34s is a nice steepener coming out of Tuesday and going into Wednesday’s German supply

As a credit

I like France Nov30 into Ragb Feb30 at anything better than -9bp

Currently -9.8 bp
Range: -13.7 bp / -8.3 bp

At which point on Z it would be -4.25bp
Graph of Z-Spread History, France Nov30 into Ragb Feb30

And here’s how we see it as a credit vs France in the 9y Tenor

France into Austria is a basic tactical trade – currently -3.3bp – we have supply in France on Thursday – two days After Austria

Trade is super stable but if we can get it on at better than -2.5bp over supply, I think it has intrinsic value and can at least pop back to -4bp

100 * (YIELD[RAGB 0 02/20/30 Corp] - YIELD[FRTR 2.5 05/25/30 Corp])

We’re also looking at another small anomaly that should have a quick 2.5bp of normalisation

Sell Nether 26s to buy Nether 2027s

Yield Spread

& vs a hedge of 10% +June Obl / -RX
100 * ((YIELD[NETHER 0 01/15/27 Corp] - YIELD[NETHER 0.5 07/15/26 Corp]) - 0.1 * (YIELD[DBR 0 02/15/30 Corp] - YIELD[DBR 0.5 02/15/26 Corp]))

Target +3.25 to get this on with some form of curve hedge for mean reversion to +2bp to be consistent with the curve

We’ve got some interesting stuff in UKT Gilts too – look forward to speaking

As always have a fab week and speak on Monday

Will & James

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

This marketing was prepared by James Rice, a consultant with Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

The week ahead - European RV, James & Will at Astor Ridge

European RV – A brief summary Greg, Dan and Team, of things that might be of interest

Belgium 47s – we like Belgium as a credit. It’s oversold vs Germany and Italy – it has been washed out with France but doesn’t suffer the same issuance surplus given its Cap Key

As a credit…

Belg 47s vs Buxl and Btps 44s
cix: 100 * (YIELD[BGB 1.6 06/22/47 Corp] - 0.8 * YIELD[DBR 2.5 08/15/46 Corp] - 0.2 * YIELD[BTPS 4.75 09/01/44 Corp])

We also see it as one of the cheapest semi-core issues cheap on the general term structure of semi- and core

Graph of Z-spreads over Interpolated Germany

The PEPPP has compressed the vol on some issuers to make them ‘trade like better credits’ – from a RM point of view we can use a vol adjustment to see how the apparent reduced risk might change the view of the market

Buy looking at Var adjusted spreads to Germany (gives a sense of ‘how the credit trades’) then Belgium offers value vs its immediate peer group

We’ll leave you to think about the best expression given the moves in 10s30s – I think we are in a paradigm shift for global curves – but a bounce seems to have brought a flattening whereas I had thought we would see a bear flattening in 10s30s if 5y got heavily sold

EU 20s30s steepening

EU Sell 30y vs Buy 20y

Up until Thursday we saw aggressive steepening – talk of a 15y EU has pushed out the 10y t0 20y range of EU

The EU curve now has a very similar slope except in 20s30s where it’s too flat – although it is a triple A issuer and inherits some characteristics from the swap curve, it should not be flatter than the German Curve

See the graph of Z-spreads vs Germany (Z vs interpolated German Z)

Here’s how EU 2040s / 2050s has performed vs the similar maturity German Dbr

100*((yield[EU 0.3 11/04/50 Govt ]-yield[EU 0.1 10/04/40 Govt ])-(yield[DBR 0 08/15/50 Govt ]-yield[DBR 4.75 07/04/40 Govt ]))

We’re getting the point where German 2050s are finally cheap on Z- too – having been too rich (due to their low coupon) they finally gave up ground in the steepening last week

Supply coming

With supply from Austria, France, Spain and Germany – it’s tough to call 10s30s but I like that steepener as a counter for any flatteners we might put on from either French longs or German new 15y

Credit perspective
Personally I’d take some Ragb Feb30s if they soften with the tap of 2031s (2030s are a good bit cheaper) and be short the EU 2050s and be having Belgium 30s 47s flattener against it

Am avoiding the 20y France as I think it’s optically cheap on yield but its very low coupon is just not as good as some of the higher coupon Frtr such as May48 or May31 when we strip the curve using par and zero rates

New German 15y coming next week - €3bln Mar36 on Wednesday
The German 15y Mar36 was priced at +6bp / -4.25bp in the street on Friday – that’s gonna be a really cheap point on the 15y – the 2035s have been offered only in the street and are close to the bottom vs contract wings. The level of spread means 36s will be cheap and that could cheapen every core and semi core issue in that sector – it’s starting to look pretty cheap already and therefore it makes Nether 33s, Ragb 34s and 37s, Finland 31s and yes, Ireland 31s and 34s look rich

Here’s how I see German Z-spreads vs a smoothed out curve – Germany only

Austria 2031s tap (along with 2024s) €1,4bln for the two issues – on Tuesday

Ragb 2030s looking too cheap – buy as on spread vs Ragb2029 OR buy as a credit vs France (French supply coming on Thursday)

The heavy selling in Ragb 2031s has actually adversely impacted the Ragb30s more than the the 31s

29s30s too steep..
-Ragb 2029 +Ragb 2030
vs
10% of +Back month Bobl (dbr feb26) / -old 15y Germany (dbr 34)

Cix:
100 * ((YIELD[RAGB 0 02/20/30 Corp] - YIELD[RAGB 0.5 02/20/29 Corp]) - 0.1 * (YIELD[DBR 4.75 07/04/34 Corp] - YIELD[DBR 0.5 02/15/26 Corp]))

Graph:

We’ve also looked at – Ragb34 – Ragb 30s vs Ragb 34s is a nice steepener coming out of Tuesday and going into Wednesday’s German supply

As a credit

I like France Nov30 into Ragb Feb30 at anything better than -9bp

Currently -9.8 bp
Range: -13.7 bp / -8.3 bp

At which point on Z it would be -4.25bp
Graph of Z-Spread History, France Nov30 into Ragb Feb30

In Germany, our plan is to end the week with +2036 -2042 +2050,

which if I plot history with 2035 on the short leg, shows no signs of the belly having cheapened, whereas it has with most other issues..

I would weight this fly on expected Var…

One third vs two-thirds…

+Dbr2036 -Dbr 2042 +Dbr2050

Weights: +0.33 / -1 / +0.67 (all x 2 for comparison to other flys)

cix:
200 * (yield[DBR 3.25 07/04/42 Govt]-0.3*yield[DBR 0 05/15/35 Govt]-0.7*yield[DBR 0 08/15/50 Govt])

And the same struture on Z….

I think this is a slow burner – in any flattener, the high coupons will look richer on Z – the risk to this one would be a more extreme steepening of 10s30s – and generally the 42s surf cheaper from being rich – the wings are just plain cheap

Still like Spain vs Italy 30y/20y forward as per last week…

100 * (G0061 30Y20Y BLC2 Curncy - G0040 30Y20Y BLC2 Curncy)

As always have a fab week ahead

James & Will

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

This marketing was prepared by James Rice, a consultant with Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

Trade #1 – 30y and 40y supply and high coupons have low duration, should be sought after in steep curve!

Trades & Fades - James Rice & Will Scott at Astor Ridge week 22nd Feb

Some thoughts on European RV for the forthcoming week

UK – supply and contracts

Belgium – credit fly

Netherlands – green Bond

Spain/Italy - 30y20y

– something for everyone here

Supply

23^rd Feb – 30y tap

2^nd Mar – New 5y (Oct 26 end date)
2nd Mar – 40y tap

4^th Mar – 10y tap

9^th Mar – 20y tap

Contract Corner – are contracts cheap? CTD is UKT 4.75% 2030

Recent big movers in RV Value 2036s and 2057s – both historically cheap

Analysis

· Fit a Nelson Siegel, Svensson curve to par Rates

· Calculate the PV of cashflows of every bond

· Compute Rich/Cheap based on Cash-Flow Value

Sell 30y & 40y vs Buying UKT Oct54

Weighting: 0.67 / 1 / 0.33 (twice as much front wing as back to match the maturity and curve dynamic – all times by 2 to compare vs other flys)

200 * (YIELD[UKT 1.625 10/22/54 Corp] - 0.67 * YIELD[UKT 0.625 10/22/50 Corp] - 0.33 * YIELD[UKT 0.5 10/22/61 Corp])

On swap spread to show a little bit of edge vs swap curve too…

2 * (SP210[UKT 1.625 10/22/54 Corp] - 0.67 * SP210[UKT 0.625 10/22/50 Corp] - 0.33 * SP210[UKT 0.5 10/22/61 Corp])

Level: Like some @ +1.75bp

Strong Add : > +2bp

Target : + 0.5bp
Fair Value: -0.25bp

We respect that this fly implies the 54s has always traded a bit cheap but has intrinsic value down below flat

With supply in both wings this one has a good probability of < +0.5bp and beyond

Graph

Anomalies (fully cash-flow discounted to fitted par curve – NSS model)

Trade #2 – 20y starting to look rich on cash-flow valuation – supply trade

· Sell Ukt 20y

· Buy Ukt HC 36 and Ukt HC 46

· Level: +15bp

holding out for +15bp (pay the spread)

Nice pick up in carry where the surrounding high coupons have ‘hidden’ value (C&R on request) - essentially these shorter, lower modified duration bonds should have performed even better in the steepening curve

200 * (YIELD[UKT 1.25 10/22/41 Corp] - 0.5 * YIELD[UKT 4.25 03/07/36 Corp] - 0.5 * YIELD[UKT 4.25 12/07/46 Corp])

And vs Swaps…

2 * (SP210[UKT 1.25 10/22/41 Corp] - 0.2 * SP210[UKT 4.25 03/07/36 Corp] - 0.8 * SP210[UKT 4.25 12/07/46 Corp])

Tells us we can wait for our level as this one has been super stable – 0.5 bp on the middle is 1bp on the fly – so makes sense to hold out for +15bp on the yield structure

Trade #3 – Gilt contracts finally cheap

· Buy Gilt contracts (CTD – 4.75% 2030)

· Sell Ukt 1.5% 2026 – expensive bond and lovely prep for new 5y

· Sell UKT 2035 – on the run 15y tapped in mid-March – optically on yield valuations, Nelson Siegel, Svensson says ‘not so much’ !

you could supplant 2035 with HC 2034, as optically they are rich and gives some balance to keep it relatively high coupon like the Gilt CTD

Gilt contracts have been slammed in the reversal of the market – and at the lows in yield we were talking ourselves into the multi contract deliverable explanation of their richness – now it’s about finding a boundary condition for their cheapness
Looking at the anomaly graph, then plus or minus more than 2bp of anomaly vs the stripped value of cashflows and the forwards look out of whack for this issuer

I like being short the jul26 – they’re almost as rich as the 1.625% of 28 and we have a proximate new oct2026 coming soon – Gilts are finally cheap and on the long leg? – well you pays your money and you takes your choice.

Optically the 2035 looks cheap and I wouldn’t say it was rich but it gives curve balance, but if want to stay high coupon then you gotta be selling the 2034s which should suffer as the HC 2036 seem very offered

200 * (yield[UKT 4.75 12/07/30 Govt]-0.5*yield[UKT 1.5 07/22/26 Govt]-0.5*yield[UKT 0.625 07/31/35 Govt])

Do we have edge here? Vs swaps…

Seems so

2 * (SP210[UKT 4.75 12/07/30 Corp] - 0.5 * SP210[UKT 1.5 07/22/26 Corp] - 0.5 * SP210[UKT 0.625 07/31/35 Corp])

Level: +5bp (all-in)

Var is obvs higher now so scale accordingly

Fly vulnerable to vicious sell-off so check forwards with us make sure we give nothing away

Belgium

Supply

Monday 22^nd Feb

Bgb 0.8% 2025

Bgb 0.8% 2028

Bgb 1.25% 2033

Belgium as a Credit Trades close to France – Generally it’s a worse rated issuer but benefits from higher capital key buying

My Fade is to try and buy it vs large issuers

The whole semi-core segment has underperformed a blend of Germany and Italy – so I would try to…

Buy Belgium

Sell Germany and Italy

Here’s how that looks in 9yrs (close to the contracts, RX & IK)

100*(yield[BGB 0.1 06/22/30 Govt]-0.8*yield[DBR 0 02/15/30 Govt]-0.2*yield[BTPS 3.5 03/01/30 Govt])

The two spreads;

Regressing changes in the component spreads for that trade to see how well they hedge each other over 120 trading days

Belgium/Germany vs Italy/Germany…

Slope: 18%

R2: 0.747

We see the recent under-performance of semi-core as indigestion in the face of supply and additionally long Spain has impacted all the credits rated between Italy and Germany.

Looking at the Belgian curve on its own, the bonds of real Note in terms of value are

20y Belgium 0.4% 2040 – rich

Old High coupon Belgium 4.25% 2041 – cheap

Of the supply bonds, the BGB 33’s are rich but are a green bond and we see their 2bp premium as in line with other green issues

Trade#4 – LC 20y rich / HC 20y Cheap it’s just gonna keep going?....

Sell Belgium 40s to buy Belgium 41s

(YIELD[BGB 4.25 03/28/41 Corp] - YIELD[BGB 0.4 06/22/40 Corp])

Level: +1bp

Add +2bp

Again the carry is positive here still +0.2bp /3mo after 10bp repo spread

And the cash flow value of the 40s is truly revealed when we discount all cash-flows using a fitted Belgian curve – we’ve steepened a lot recently and the move from +2 to +1 doesn’t fully compensate for the additional value of the high coupons in a steep curve

definitely add @ +2bp and there’s always a chance the lower coupon bond is tapped

Target: -1bp

As a credit, I like the following trade

Trade#5

Buy cheap Belgium HC 4.25% 41
Sell Germany HC 3.25% 42

Sell Italian HC 5% 39

I’ve tried to pack every bit of value into this one – and the weightings are
-0.7 / +1 / -0.3 (all times by 2 to normalise it vs other flys)

100 * (YIELD[BGB 4.25 03/28/41 Corp] - 0.7 * YIELD[DBR 3.25 07/04/42 Corp] - 0.3 * YIELD[BTPS 5 08/01/39 Corp])

Decent var so scale accordingly. The 42s in Germany are a touch rich and the Aug39 in Italy I see as fair and a nice high coupon short if ever Italy gets a wobble

Back to pre-Covid levels here which is a surprise

Holland

Tuesday, Netherlands to Sell up to €2,5Bln 0.5% 2040 green Bond

AS a credit Netherlands has cheapened as it digested the new 10yr July 2031, but if I ‘var adjust’ the spreads of European issuers vs Germany I still don’t see Nether as cheap…

Var Adjusted Spreads to Germany – 9yr Maturity, 120 days trading history

Now we know that the green nature of the current 2040s will give it a little premium but to me it’s too excessive when we compare it again the cheaper higher coupon 2042s

Here we have discounted all cashflows to a double exponential curve to compute the anomaly values…

I like the straight switch out of 2040s into 2042s – with an absence of value in Holland as an issuer, and a bountiful supply of cheap 10yrs then I think the market will have ‘make room’ for this issue and we will see a compression of the 2042s over the 2040s

Trade #6 – Green Bond supply and the cheaper HC

Sell Nether 40

Buy Nether 42

Level: +1.2bp
Target: Flat

Italy

On Monday night they announce the M+L supply for Thursday - Typically we expect 5y & 10y

And on Tuesday we get the las tap of a Ctz (ticker: ICTZ) zero coupon sep22 as they change their issuance structure to a more regular 2y Btps style bond

Italian forwards are generally smooth …

So not a lot to say here

But I do like the fly -10y +20y -30y
Supply in the new low coupon 10y means the old low coupon Aug30s lose their lustre

The old 20y Mar40 have decent carry and are no longer the tap bond

And the on the run Sep51 30y is only 10 Bln in size whereas the prior Sep50 got to 16Bln

Level: +36.6bp
Enter: +36.5bp (25% risk)

Add: +39bp (75% risk)

Target: +33bp (I have fair at +30bp, based on forwards so this had intrinsic value beyond history – always important)

2 * (YIELD[BTPS 3.1 03/01/40 Corp] - 0.5 * YIELD[BTPS 0. Corp] - 0.5 * YIELD[BTPS 1.7 09/01/51 Corp]) * 10095 08/01/30

Spain / Italy

Trade #7 – Long Spain 30y20y vs Italy

Looking at Italian forwards vs Spain we can see that the unloved 50y Spain has not been absorbed and 30y20y Spain looks flat to Italy..

We can simulate the spread of two forwards by mis-weighting two yield spreads but then keeping the whole structure Duration Matched…

For history we use the old 50y bonds vs old 30ys

Changes in Spain 30y20y is approximated by:

(YIELD[SPGB 3.45 07/30/66 Corp] - 0.75 * YIELD[SPGB 1 10/31/50 Corp]) * 100

Changes in Italy 30y20y is approximated by:
(YIELD[BTPS 2.8 03/01/67 Corp] - 0.75 * YIELD[BTPS 2.45 09/01/50 Corp]) * 100

If we then subtract Italy 30y20y from Spain 30y20y we can see how this nett index has moved…

And here’s the History of the CMB points on Bloomberg for confirmation of the absolute value level

-Spain 30y20y vs +Italy 30y20y @0bp!!!!

Spain is fundamentally a better credit rating - S&P A, Moody’s Baa1

Italy is BBB, Baa3

I like this one – and I prefer the forward rate expression – var weighting suggests Italy as a credit gone too far and Spain has just about absorbed the 50y throughout its tenor structure

There’s always a chance Italy comes with a new 50y and there’s a decent 50bp in the forward to be made here if we’re patient. Again this has entered a new era of volatility and scale accordingly – give us a call to check you weightings on this one

Germany

German Supply – new 20y 2036 on Wednesday March 3^rd

The prior 15y May35 was initiated with 7,5Bln syndication and traded poorly, only richening into the curve towards fair value as it came to the end of its tap cycle – this was new issuance tenor for the Germany

So although ‘fair’ seems to be about +4bp over the outgoing 2035s it may be a little cheaper

Consider the following two graphs when grappling with the German curve...

1. German Bond Anomalies (bp) - Yield minus Fitted Curve

2. German Bond Cash-Flows PV’s vs fitted par Curve valuation (bp)

Observations

Yes the old 15y 2035 is cheap but for roll? the on the run (feb31) 10y beats it hands down!
The old High coupon Bonds that appear ‘optically’ rich under simple yield analysis are actually pretty fair in reality. If we want to trade this sector we need to properly discount the cashflows using a German Zero Curve to analyse rich/cheap
In fact the 2037s have already cheapened a little in anticipation of the 2036
It’s the high coupon 4.75% 2034 that have the farthest to cheapen

Trade #8 – Long German 10y and Buxl contract vs short Dbr Jul34

200 * (YIELD[DBR 4.75 07/04/34 Corp] - 0.5 * YIELD[DBR 0 02/15/31 Corp] - 0.5 * YIELD[DBR 2.5 08/15/46 Corp])

Level: -24.75 bp

Add: -26.25 bp
Target: -21.5 bp

As always – have fab week and speak soon

James & Will

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

This marketing was prepared by James Rice, a consultant with Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.

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Trades & Fades - Will & James

Spain – 20s30s steepener vs Swaps

Tap of high Coupon Spgb Jul40…

leaves high coupon 4.7% 41s looking cheap vs Low Coupon Spgb 1% 2050

On the run 30y Spain is rich with poor carry characteristics

Trade:

Sell Spgb 50 to buy Spgb 41

On the face of it, why would you do this trade? - to the fitted curve the 30y looks fair and the High coupons appear rich…

Basic Anomalies vs fitted curve… yield – minus fitted curve

However, if we discount the cashflows in the Spanish curve we have the lens with which the market sees value…

The High coupons in the 41s are revealed as shorter in modified duration terms. Or put another way – the early cashflows of the High coupon bond present much more value than the low coupon for the run 30y

Full Valuation method - Anomalies after Stripping the Cash-Flows vs Par Bond Curve – discounted PV minus market dirty price

We use Swaps to control the curve risk

+20y (HIGH Coupon) / -30y steepener vs MMS

@ -27.5bp
Curr: -27.5bp

Target: -30bp

Carry & Roll ( /3mo)

Bonds: Carry +0.5bp, Roll +0.5bp (-0.1bp spread)

Swaps: Roll -0.45bp

Graph…

Buy FRTR 5/30 (CTD to OATH1) vs FRTR 4/29 & FRTR 5/31

Enter: 3.5bp

Add: 4.0bp

Profit target: 1.5bp

Long FRTR 5/30 vs 4/29 & 5/31 on 1:2:1 fly

· OAT contracts have taken the brunt not only of hedging flows for new issuance this year, but also as the liquid point on the French curve on the selloff in rates

· As a result the FRTR 5/30, which is CTD to the OAT future, has cheapened too much vs wings

· As can be seen from the below forwards:

o FRTR 4/29 vs 5/30 is the steepest part of the OAT curve

o FRTR 5/30 vs 5/31 is too flat

· On top of this we will get a new 10y (likely 11/31) in the new few months, which should weigh on the 5/31

· Also towards the end of this month we have coupons and redemptions in France totalling EUR 24.7bn, which should be supportive of the issuer

· In addition, syndicated supply should slow down, easing the pressure on the OAT contract as a semi-core hedge

· OAT rolls could also be supportive of this trade as speculative shorts in semi-core may choose to close positions into the roll given the performance of Italy

German on the run Feb31 10y still cheap – moving the value wings to narrower dates

Trade:
Buy Dbr Feb31

Sell Dbr Aug27 and Dbr Jul34

Curr: +14.75 bp
Target: +12.5 bp

Weighted Roll and Carry: -0.1bp / 3mo (-10bp repo spread)

BBG Graph

On regular analysis this we can see the on the run 10y is offering itself as cheap to be absorbed…

Basic Anomalies vs fitted curve… yield – minus fitted curve

But we need to understand the Longer High Coupons and value them after adjusting for their coupons…

Full Valuation method - Anomalies after Stripping the Cash-Flows vs Par Bond Curve – discounted PV minus market dirty price

So interestingly – the High coupon Bonds in 12y to 25y Germany make much more 'sense' when we correctly discount all their cash-flows

– even after doing so the Jul34s are still rich

We'll call, these look like opportunities

James & Will

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

Italy new issue and revisiting bond curve value

Team G – we've been busy looking at Bond RV and trying to improve our understanding of valuations

Conclusion

Low coupons 'appear' cheap in regular yield analysis

If we discount the cash-flows using a par bond curve we see that the Aug31 will offer value at a spread to the old bond at around +5bp

Our favoured trades would be to sell Aug30 AND / OR Btps Mar37

As a boundary condition this issue should put a cap on the old 15y Btps Mar32

More importantly –

New Italy Btps 10y 0.6% coupon (???) Aug 31

We have plumped for +5bp's our starting spread vs the Apr31

Method 1 - Simple yield curve fit – bond yields minus smooth curve…

Aug31 – look great value, and in prep I like being short Aug30

When is a cheap bond not a cheap bond? – when it is rich?

Par bond analysis…

Method 2 - Par Bond Curve Fit – Discounting ALL Cash-Flows with a smooth, Italian Zero Curve

The low coupon bonds, in an upward sloping curve have limited value vs the Medium coupons normally – but at similar spreads they are a 'true' buy as we have accurately valued all the flows

We do see pressure on Aug30s and Mar37s as rich – but also the old Btps 1.65 Mar32 should now be bounded by this new Bond which even after adjusting for its cashflow has the same value

NB – none of this analysis assesses the default / redenomination value – if we buy a low coupon at the same cashflow value to a higher coupon – we get that option for zero premium

Happy to Chat

James and William

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

Trades & Fades - European RV, James & Will at Astor Ridge

A few thoughts on European RV for the forthcoming week

Fade: Fed and ECB policy will be to focus on 'average inflation', or as I read it the integral of inflation

Result: The result will be an initial lack of action and then a dramatic response later in time

Search: forward rate steepeners / buying bullets & selling wings

Trade:

Buy Frtr May34

Sell Frtr May31 & sell Frtr Oct38

Graph:

Levels

Current: +5 bp

Enter: +5bp (33%)

Add : +7bp
Target: +1bp (Long Term), take profit on a proportion at +2 bp

Rationale

Trade has intrinsic value beyond history – see anomaly values versus fitted curve

The Frtr May31 rolls towards the 10y issuance point and looks rich
The Frtr Oct38 is a rich high coupon
The trade satisfies our constraint of approximating long a forward and then a short a forward

Forward rates between bonds…

Trade:

Buy Germany Dbr Feb31

Sell Dbr Aug28 & Dbr Jan37

Levels:

First Entry: Flat

Current: -2.6bp
Target: -5 bp (Med Term) / -8.5bp (Long Term)

This is a theme we're sticking with from before – bags of intrinsic value above beyond simply staring at history

Given it has moved a lot it's tough to add much other than a small portion here

Graph

Mutation

What I would recommend is re-balancing the structure
From : -.5 / +1 / -.5 (x2)

To
To -.65 / +1 / -.35 (x2)

Rationale

Anomaly Value – see graph

Forward Rate Value – see graph

Supply Edge – New 7y and 15y coming (27^th April & 3^rd March) makes the shorts look rich and possibly cheapen

Fade: ECB / PEPP buying has aggressively bought low credit names

Result: weaker credits 'appear' to trade like better names, but if we volatility adjust we can see some as still rich – Semi core and Spain have been left as cheap due to recent long end (50y)

Supply

Search: Buy better ranked mid-credit names vs selling a mix of Germany and Italy. Need to see reasonable correlation in the components and solid value away from the simplistic history of 'how it has traded'

Trade

Buy Spanish 30yr

Vs Selling Italian 30y and German 30y (UBH1)

Levels

Enter: +56.5 (33% of risk)

Add: +65 (67% of risk)
Stop +70bp
Target: < 50bp

cix:
100 * (YIELD[SPGB 1 10/31/50 Corp] - 0.65 * YIELD[DBR 2.5 08/15/46 Corp] - 0.35 * YIELD[BTPS 2.45 09/01/50 Corp])

Graph:

Rationale

Spain looks cheap based on our graph of Issuer spreads vs Credit Score

Spain is still cheap - On Volatility / Var weighting (helps adjust for the compression caused by APP buying)

Spain / Germany remains correlated to Italy Germany

Slope 0.36, r2 0.82

120 days regression if relative swap spreads (Spain – Germany) vs (Italy – Germany)

Fade: ECB buys tenors up to 31yrs only

Result: Seek to be nett long ECB PEPP buckets

Search: recent cheap 50y France allows us to be long 52s (goes into PEPP in May) and 72s vs the richer 66s

Sell France Frtr 66

Buy France Frtr 52 and Frtr 72

+.15 / -1 / +.85

Levels:
Current: -6.9bp

Enter: -6.5bp (pay the spread 33% of total risk)

Target: -2.5bp

Cix:

200 * (YIELD[FRTR 1.75 05/25/66 Corp] - 0.15 * YIELD[FRTR 0.75 05/25/52 Corp] - 0.85 * YIELD[FRTR 0.5 05/25/72 Corp])

Graph:

Graph of Anomalies vs Fitted Curve

French Contracts CTD a lurking problem as a High Coupon CTD

The average coupon of my French curve build is 2.12%

High coupon CTDs have a habit of trading rich when they drop out of delivery as there street float is more limited – sometimes that's from a rich bas. They can richen on the drop out if being CTD has forced them cheap – note here we're talking about rich/cheap in absolute terms – not just how it has moved

Buy France CTD May and Frtr May34
Sell High coupon Frtr Oct32

Cix:

100 * (YIELD[FRTR 5.75 10/25/32 Corp] - 0.35 * YIELD[FRTR 2.5 05/25/30 Corp] - 0.65 * YIELD[FRTR 1.25 05/25/34 Corp])

Graph:

French anomalies

Rationale

French OAT contracts have been heavily used to hedge issuance in Semi-core. In the long haul I want to roll positions to be long or at worst case flat

On my radar

UKT 35s remain top of forwards curve

Buy Ukt 5e35

Sell UKT 1q31 (10y) and UKT 1q41

Level: +8.6bp

Enter: +8.5bp (small)
Strong Add: > +9bp

Target: < 7bp

200 * (YIELD[UKT 0.625 07/31/35 Corp] - 0.5 * YIELD[UKT 0.25 07/31/31 Corp] - 0.5 * YIELD[UKT 1.25 10/22/41 Corp])

Based on forwards we need another half a bp on this so at any level > +9bp looks really sound to me and keeps us short a supply bond

Forwards

Seeing gilt market on pure technicals as oversold, so don't mind buying a bullet vs wings here…

As always – call us for any further info

Will & James

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

Our plan going forward - James & will Euro RV

Structurally where we're trying to get to with Euro RV positions….

Nether

+Nether jul31s -Nether jan33 @-1.9bp

Plus some curve hedge: 5 – 10% -rx / +ub

Spain – syndication today in 50y – Spain heavily discounted

+50y Spain

vs France and Btps

100 * (YIELD[SPGB 3.45 07/30/66 Corp] - 0.5 * YIELD[FRTR 1.75 05/25/66 Corp] - 0.5 * YIELD[BTPS 2.8 03/01/67 Corp])

Plus long Spain 50y vs old 50y @ > +12bp

-66s +71s

Germany

Still chasing the +10y vs -7y and -16y
(2 * YIELD[DBR 0 02/15/31 Corp] - YIELD[DBR 4 01/04/37 Corp] - YIELD[DBR 0.25 08/15/28 Corp]) * 100

Gilt contract finally has value in terms of anomaly vs other high coupons

{GB} -4q27 +GH1 -4t38

200 * (yield[UKT 4.75 12/07/30 Govt]-0.65*yield[UKT 4.25 12/07/27 Govt]-0.35*yield[UKT 4.75 12/07/38 Govt])

Italy to sell 2041s on Thursday

Buy Mar40 vs Mar37

Like selling on the run 15y Mar37 to buy old 20y Btps 3.1% mar40 – curve has steepened a little into Spanish long end supply and like the flattener for positive carry here

Get this on a timing basis – Wednesday, day before supply

James & Will

James Rice

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

Office: +44 (0) 203 - 143 - 4178

Mobile: +44 (0) 754 - 011 - 7705

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796