GLOBAL INVESTMENT STRATEGY, EXECUTION AND RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS

 

The week ahead Euro Govt RV

 

·         Supply slows down

·         Recent sell-off may precipitate syndications

·         Possibly:

Spain 15y

Italy longs (50y?)

France, Green 20y

 

 

                Buy Old 10y NETHER 7/30 vs NETHER 1/33 @ -8.25 bp

 

Ahead of next Tuesday's new issue Nether July 2031….

 

·         The curve has already started to steepen

·         33s normally a rich bond now appear even dearer considering…

1) Cheapness of new 31s (traded on Friday vs 30s @ +6.3bp)

2) Tap of the Green the 20y coming -  NETHER 1/40, scheduled Feb/Mar

·         The forwards shows 2033s as rich – can cheapen a further 2 - 3 bp

·         New 10y roll (7/30 vs 7/31) trading at 6.3 in grey market.

 

We see value in the roll at +7 bp. If it gets +7bp we would mutate the position +Jul/31 vs -Jan/33 at only -1.25bp

 

 

 

 

        Absorbing Dutch supply from a credit / var perspective…

 

      Sell 9y Nether vs Receiving Swaps

 

      So here we have looked at the spread of each issuer vs Germany and adjusted it for the Var (Std Dev - 90 days)

 

      This clarifies issuers that are trading rich, despite poor credit ratings. Their volatility is compressed to give the semblance of a less risky issuer

 

The PEPP has compressed the volatility of small Issuers (for whom the capital key implies net buying flows)

In doing so they make these names 'trade like better credits' – so how to value that?.... after all, less vol means it's less risky, right? But am I being rewarded enough for that?

 

– to know if they are truly 'rich'  from an asset allocation standpoint, we look at volatility/var adjusted spreads – When we do that. we get a clearer lens with which we can view the anomalies of each issuer and how they trade

 

The graph shows Nether as somewhat rich and swaps, with a similar vol, as cheap

 

Graph – Var adjusted Spreads to Germany

 

 

 

Similarly, despite the aggressive steepening of the swap curve, as an asset, sub15y Swaps have value given their vol – extending in longer tenors still exhibits a strong inversion from either, receiving last March or possibly the implied vol and convexity value in longer dated forwards. That may still unravel further and we're cautious about using long swaps as a part of our supply rotation portfolio

 

But we do see value in the 9y swap. Bond/Swap spreads look very stretched (bonds rich) throughout the tenor range on a simple chart of history

 

Graph – Nether Swap Spread

 

 

 

 

Alternatively – we expect Holland to continue to underperform on a credit fly…
Structure:

Short Nether Jul30
Long 90% RXH1
Long 10% IKH1

 

            Current: +3bp
            Target: +5.5bp

 

         

 

 

Last week's French long end and Belgian 50y syndications have left 30y France cheap vs Germany and Italy
Although not at crisis levels, we see Frtr, even as a larger issuer – cheap vs Bunds and Btps..

cix:
100*(yield[FRTR 0.75 05/25/52 Govt]-0.8*yield[DBR 0 08/15/50 Govt]-0.2*yield[BTPS 2.45 09/01/50 Govt])

Bloomberg History

Not at Covid levels but cheap as it has been since last June

 

Graph of Z-spreads EU spreads to Germany with their Credit Rating (Score) on the x-axis

                *Rating score is composed of current ratings and outlooks

 

Enter: +22.5bp
Target +15bp

 

      Buy SPGB 10/40 vs NETHER 1/33 & BTPS 4/30 on .6/1/.4 fly

 

·         Spain 40s cheapened up anticipating supply in the 15-20y sector

·         Holland to issue new 10y next week and tap the 20y Green bond at the end of the month

·         Italy massively outperforming on a cross issuer basis

·         The r2's show little correlation to the spread level or the curve

 

 

 

 

 

       France – Frtr Fly – sell the Belly in old 50y…

 

Long 52s – Short 66s – Long 72s

• Anomaly looks good to buy newer issues (wings)
• Nett long PEPP, forward out of May – 52s drop into the PEPP basket as they go sub 31y maturity

 

We want to always have this one on – it may get stretched into supply but it's long convexity

 

Just take a look at the yield curve

 

 

              And if I fit a yield curve and subtract actual yields,  I can see the anomalies in the French curve…

             It becomes even more clear we need to be short the belly

                *Fit weighted to reduce SUM{[anomaly_i* var_i])^2}on current coupon bonds

 

            We need to mis-weight slightly to get the balance of curvature just right and there's a brief history…

 

            I like this trade here (50% of our risk): pay @ -6.25bp

 

and using forwards I think the hard boundary is close to this level – so I want some on

 

adding would be function of timing around the next 50y supply in 72s but I would not be shy to have this

 

Germany -10yrs cheap, get set for 15y supply in March, 7y supply in April & catch 8s10s roll-down

         

One we've been watching and really like is

Long Dbr Feb31

Short Dbr Aug28 and Short Jan37

but to be honest seems to be getting away

 

BBG History

 

• DbrFeb31 from a 'knee' of the forwards curve – they're so cheap implying rates rise and then level out – implausible in a generally rising yield curve (for large gaps)
• New Nov28 Bond coming on April 27^th makes Aug28 look rich
• New May26 Bond coming March3rd makes jan37 look rich

 

I liked this trade at flat, I still feel we should have some here – next tap of the Feb31 10y is 24^th Feb – so it's timing gig around that date or before

 

 

 

                Spain – 20y vs Nether and Italy

 

• Spain as a credit has been underperforming in longer tenors
• var adjusted spread it's cheap in the absolute AND historical
• Nether, Green 2040s Supply coming in 20y offers limited upside coupled with the volatility not dis-similar to semi-core
• Italy 20y feeling a little stretched in terms of spread – but is only a 'wing' to the trade

 

20y is a more common tap point for Euro Markets and so we're taking advantage of rotating our book around supply and value

That said Spain seems to trade like a long syndic is coming – but tbh these order books seem to leave RV in the dust and expose true demand for blocks of bonds with positive yield..

 

BBG History on the fly

 

Holland always trades rich in longs – there's a natural demand there – but with the PEPP in operation Nether 40s are just 12.2bp over the Dbr Jul40 and don't really have much more to go in terms of tightening

 

Conversely in the massive Btp rally, Spain has been a huge laggard -going from -60bp to -41bp vs Italy

 

Even if we regress Spain vs Italy on yield differences – a quick 1y analysis shows a Beta of 61% the residual looks compelling (r2 = 0.97)

*Note the Beta is derived from regressing yield changes (0.61 slope). Then the regression of absolutes is recomputed using that slope in the 'Mult' entry on Bloomberg.

 

 

Residual is +3.7bp at the extreme of the distribution for this leg

 

 

I like this trade – a little cautious of supply

 

 

 

As always,

 

                Have a fabulous week ahead and look forward to speaking

 

 

                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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

 

 

                                While it's hard to judge the impact of a Draghi govt in Italy – I wanted to revisit bearish BTP structures in Italy really quickly before the opening…

               

                               

                Trade 1 -
                Curve Flatteners

 

– looking at the absence of 'risk' in Italian forwards  a weaker BTP curve will be led by 5s and 10s – so 10s30s flattener is ok but crowded and over valued unless we get a very dramatic > 20bp sell off

                Therefore I like…

 

                I like 30s50s flattener

                (YIELD[BTPS 2.8 67 Corp] - 1 * YIELD[BTPS 2.45 50 Corp]) * 100

 

                And on a regression, the residual of that trade looks ok too

(YIELD[BTPS 2.8 67 Corp] - 0.904 * YIELD[BTPS 2.45 50 Corp] - 0.41) * 100

 

               

 

Trade 2

Sell belly buy wings

-5y +2y +10y

CMB Bloomberg bonds displayed

200 * (RV0005P 5Y BLC Curncy - 0.5 * RV0005P 2Y BLC Curncy - 0.5 * RV0005P 10Y BLC Curncy)

Again great location, front forwards have removed so much Italian risk ove the last 9 months that it's easy to see how uncertainty of the long term political scenario couldn't weaken 5yrs

 

 

                                Trades 3 & 4
                                Credit Yield Spreads – sell weaker, vulnerable credits for almost no give up into better, small names – although they have been bought by PEPP – a falling tide avails all these names as plain rich

 

                                While Italy can be seen to trade 'cheap' to its neighbours in terms of spread to Germany vs Credit Rating – any weakness could have a knock on impact onto weaker names

               

                                Trade 3

Ireland into France – 9yrs

                                100 * (YIELD[FRTR 2.5 05/25/30 Corp] - YIELD[IRISH 0.2 10/18/30 Corp])

                             

 

                                Trade 4

                                Portugal into Spain – 9 yrs

                                100 * (YIELD[SPGB 1.95 07/30/30 Corp] - YIELD[PGB 3.875 02/15/30 Corp])

                               

 

                               

 

                               

Let us know

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

 

                                While it's hard to judge the impact of a Draghi govt in Italy – I wanted to revisit bearish BTP structures in Italy really quickly before the opening…

               

                               

                Trade 1 -
                Curve Flatteners

 

– looking at the absence of 'risk' in Italian forwards  a weaker BTP curve will be led by 5s and 10s – so 10s30s flattener is ok but crowded and over valued unless we get a very dramatic > 20bp sell off

                Therefore I like…

 

                I like 30s50s flattener

                (YIELD[BTPS 2.8 67 Corp] - 1 * YIELD[BTPS 2.45 50 Corp]) * 100

 

                And on regression the residual the same trade looks ok here too

(YIELD[BTPS 2.8 67 Corp] - 0.904 * YIELD[BTPS 2.45 50 Corp] - 0.41) * 100

 

               

 

Trade 2

Sell belly buy wings

-5y +2y +10y

CMB Bloomberg bonds displayed

200 * (RV0005P 5Y BLC Curncy - 0.5 * RV0005P 2Y BLC Curncy - 0.5 * RV0005P 10Y BLC Curncy)

Again great location, front forwards have removed so much Italian risk ove the last 9 months that it's easy to see how uncertainty of the long term political scenario could weaken 5yrs

 

 

                                Trades 3 & 4
                                Credit Yield Spreads – sell weaker, vulnerable credits for almost no give up into better, small names – although they have been bought by PEPP – a falling tide avails all these names as plain rich

 

                                While Italy can be seen to trade 'cheap' to its neighbours in terms of z-spread to Germany vs Credit Score – any weakness could have a knock on impact onto weaker names

               

                                Trade 3

Ireland into France – 9yrs

                                100 * (YIELD[FRTR 2.5 05/25/30 Corp] - YIELD[IRISH 0.2 10/18/30 Corp])

                             

 

                                Trade 4

                                Portugal into Spain – 9 yrs

                                100 * (YIELD[SPGB 1.95 07/30/30 Corp] - YIELD[PGB 3.875 02/15/30 Corp])

                               

 

                               

 

                               

Let me know

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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 Part II will & James at Astor Ridge

Supply in Belgium 50y and Long France – Leaves French 30y cheap

 

French 30y vs Buxl and Btps 30y – now as cheap as crisis levels and we expect this to relieve itself by next week

 

Trade

+30y France / -UBH1 / Italian 30y

 

Carry Estimates

UBA: -0.7bp /3mo

Frtr: 30y +1bp /3mo

Btps: -2.3bp /3mo
Subject to received repo rates and contract impieds

Weighted carry package: -0.3bp /3mo

Credit curve  - Z-Score vs interpolated Germany 25y-30y…

 

Credit Anomalies vs Orange fitted Curve

            This graph is the difference between z-spread over Germany and the fitted, orange curve

*Smaller Issuers & Germany are not part of the fit

 

               

 

 

Give us a call/ drop us an IB to check your levels, issue selection and hedge ratios, pls

 

            Hope this is of some help & you’d like to see more

 

 

 

                Will & James

 

 

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

 

A few things we’re looking at in European RV space below –

Supply and Cashflow Estimates for Europe in the Attachments

 

German 10y top of the anomaly curve, a buy vs 7y and 16y

 

• Next German 10y tap (Dbr 0% Feb31) on Feb 24^th – street continues to see buying interest on the basis suggesting that RM has lifted dealers at current yield levels
• The old Dbr 4% Jan 37 will be seen as rich when the new 15y Mar 36 comes on March 3^rd
• The old Dbr 0.25% Aug28 will look rich when the new Dbr Nov28 comes on April 27^th
• The forwards look compelling on this structure – so it has intrinsic value and a solid ‘story’

 

German Anomaly Values vs Fitted curve (High and Low coupons)

 

German Bond Forwards

 

            Levels:
            Current: -0.8bp
            Add: Flat

            Target: -6.5bp Long Term

 

            Carry: -0.3bp /3mo @-10bp repo spread

 

 

            Italy Too Flat vs Germany 10s15s

            ITALY 10s15s Steepener vs flattener in 25% -RX/+UB

 

            Since last June Italy has out flattened Germany – as the credit curves compress we would expect to see stronger correlation

 

            Trade

Italy 10s20s steepener

Plus a flattening hedge of 25% delta in -RX/+UB

 

            100*((yield[BTPS 4 02/01/37 Govt ]-yield[BTPS 1.65 12/01/30 Govt ])-0.25*(yield[DBR 2.5 08/15/46 Govt ]-yield[DBR 0 02/15/30 Govt ]))

                (History using an old 16year bond – Btps Feb37)

• This box has only been this flat in a much more distressed credit scenario
• The recent low coupon Mar37 20y will continue to be tapped (the prior 15y was tapped 3 times in 9 months)
• With a low coupon in a positive yield curve its carry reflects poor cash-flow value on a fully discounted basis
• The -rx/+ub component provides some protection against changes in the shape of the risk-free rate curve with low Frictional cost: ~ .1bp

 

            France 10s50s vs MMS on recent flat – the issue and discount of the new 72s in France reminds us that the longer tenors (> 31yrs) are not eligible for the PEPP

 

            Taking advantage of the recent sell-off we see that France 10s30s and France 10s50s has out-flattened swaps – if we see any kind of PEPP buying at higher yields it will come at the sub 31y tenor

 

This may leave the 50ys (old and new) as a relative laggard

 

Trade

10s50s steepener France vs MMS

           

Bloomberg History
Long Oat Contracts / Short Old 50y (1.75% 2066) vs MMS

 

 

Levels

Current: -62bp

Enter: -62bp (25% risk)

Add: -56bp, (50% risk, at which point residual is -7.5bp)

Add: -51bp, (25% risk)

                Regress

Levels rationale is based on the regression…..

30y spread ≈ 1.7 * 10y Spread – 0.722

R^2: 0.945
Residual Graph

 

 

           

10 – 30y French supply next Thursday

Buy the Average maturity 20y on credit Fly vs Blend of Germany and Italy

Trade
Long France 2040, Short German 2040 and Short Italy 2040

Weightings: -65% / +100% / -35%

 

This one is pretty clear when you look at how the credits trade vs their rating (as a lens so that you can see the story behind each name)

Here is a graph of each issuer on z-spread over Germany – with credit ‘score’ (an amalgam of rating and outlook) on the x-axis

 

This one is timing for me – Supply on Wednesday – get some on now and add the day before supply – just keep rotating the book around supply with a view to value every time

Avoid selling the v small / scarce issues

 

Spain Bond Roll : Sell double old 10y into new 10y,

Too steep @ +9.6bp

 

 

Here’s anomalies on the Spanish curve – contextually the double old 10y into the new 10y roll is the standout

 

*The HC look rich (and they are) but that is ameliorated a little bit when we adjust for their high coupon in a steep curve by not only looking at yield but by discounting cash-flows vs a proper Spanish discount curve

 

Anomalies fast disappearing in euro RV and love a simple roll trade when everything else starts to look in line

 

Just have this one into Thursday’s first tap of the €10bln Spgb 0.1% Apr 31 – the yield spread forces the forwards to look high which makes me happy to do a roll when sometimes these things can be a land mine. That said I love it even more at a bp or so steeper so am scaling

 

 

Enter here: @ +9.6bp (25%)
Add: +11bp (75%)

Target: +8bp

we’re scaling into this one – it’s good here but because the upside is pretty low, then either I don’t want to miss the trade and have a quarter of my size on…

OR

am joyous at adding to the trade @ +11bp although am not sure we’ll get there given how stand out the trade is on the low coupon curve

So Scale!!!

 

 

All the best

And let us know if this is helpful

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

Am watching Italy 10s30s flatten versus Germany so I looking at the 10s15s steepener in Italy

 

I really like the value in the 10y point - old ten yrs dec30 and I see the new mar37 (15y) as being a potential for a tap (it's just when not if)

 

So trade I like is

{it} +dec30 -mar37

and the curve hedge is

-rx/+ub

I have some sympathy with the curve hedge too - it's steep historically or could use swaps

 

Here's the trade using the older Feb37s as the mar37 is a more recent issue

 

100*((yield[BTPS 4 02/01/37 Govt ]-yield[BTPS 1.65 12/01/30 Govt ])-0.25*(yield[DBR 2.5 08/15/46 Govt ]-yield[DBR 0 02/15/30 Govt ]))

 

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

 

 

            EU (SURE) Supply next week – 7y and 10y – New Issues

            30y EU trades rich like other High Credit Quality names

            Graph  – 30y Europe: Z-Spread to Interp. Germany vs Credit Score*

*Credit score uses Ratings and outlook from three agencies: Germany is not included in weighting the fit

x-axis: credit score

y-axis: z-spread vs interpolated Germany

 

Trade 1 – Long France 30y, Short EU and Spain 30y

Trade is starting to work

Level

Current: +14.1bp
Target: < +8bp

 

Cix:
100*(yield[FRTR 1.5 05/25/50 Govt]-0.8*yield[EU 0.3 11/04/50 Govt]-0.2*yield[PGB 4.1 02/15/45 Govt])

Weightings:

(as per shape of fitted credit curve)

80 / 100 / 20

 

 

Rationale

• EU will continue to be a large Issuer and is rich
• France has got through the 50y syndication
• France trades Cheap
• Spain not really cheapening with deterioration in Italy spread and starts to look rich

 

Germany 10y 0% Feb31 supply next week

 

German Feb31s and 35s are top of the anomaly to the fitted curve

*curve fit to var weighted smooth yields

Graph – German Anomaly Values vs fitted curve

 

Cix:
(2 * YIELD[DBR 0 02/15/31 Corp] - YIELD[DBR 0.25 08/15/28 Corp] - YIELD[DBR 4 01/04/37 Corp]) * 100

 

Levels

Current: -0.3bp
Enter: 0.5bp (33% risk)
Add: +2.5bp (67% risk)

 

Target: -3bp

 

Graph –Actual German Forwards

 

Rationale

• Dbr 0% Feb 31 is best point in forwards give absolute value and forwards roll
• Supply is being discounted via this mechanism
• Aug 28 rolls into the 7y segment – new Dbr Nov 2028 7y coming on April 28^th
• Dbr 37s rolls towards the 15y point – New 15y Dbr May 2036 on March 3rd

 

Btps High / Low coupons have almost converged

In some sectors when we discount all the cashflows using a BTP zero coupon curve , we find almost no true premium for low price bonds, which suffer less in an exogenous shock to the BTP curve

With Conte risking an election this is a good time to access default / redenomination trades on long tenors for close to zero premium

 

Buy Btps 3.1 Mar40 Sell Btps Aug39

Levels

Current: +7bp
Enter: +6.8bp
Target: +2bp

 

Graph – BBG govt exponential Spline spreads – cashflows fully discounted to Italian theoretical curve

 

Rationale

• On a fully discounted cash-flow basis the Mar40 are ‘fair’ to the higher coupon Btps Aug39 – this represents close to zero  premium for Low coupon vs High coupon
• Mar 40 are no longer the tap bond 20y and roll to a richer medium segment of the curve
• Aug39 are high coupon and roll towards cheaper Btps Feb37
• Spread is close to it’s all time wide
• The trade is an extension in modified duration terms of 1.5 yrs – we favour flatteners in a weak credit environment

 

Spread History

 

Holland

Nether: new 10y announced – Nether Jul 31s € 4-6 bln

Coupon TBA Feb 8^th 2021  DTSA:
https://english.dsta.nl/news/news/2021/01/20/new-10-year-benchmark-bond-reopening-dsl-2025-and-update-issuance-calendar-first-quarter-2021

 

The discount in New 10yrs makes 12y look rich

Nether 2.5% jan33 already look rich to the Nether 30 – see forwards graph….

 

If we add in the new Nether jul31 at a spread of +6.4bp (equal to the old roll of nether 29s/30s) – we can see how the 33s look even richer to the new 31s….

 

 

 

 

Trade:
Nether Buy outgoing 10y / Short Nether 33
current level -6.6bp
enter: -7bp
Target: -11bp

Rationale

• The old ten yr rolls down the curve
• The new issue even at the old roll spread will avail the 33’s as rich

 

Any other thoughts and questions pls give us a call

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

            EU (SURE) Supply next week – 7y and 10y – New Issues

            30y EU trades rich like other High Credit Quality names

            Graph  – 30y Europe: Z-Spread to Interp. Germany vs Credit Score*

*Credit score uses Ratings and outlook from three agencies: Germany is not included in weighting the fit

x-axis: credit score

y-axis: z-spread vs interpolated Germany

 

Trade 1 – Long France 30y, Short EU and Spain 30y

Trade is starting to work

Level

Current: +14.1bp
Target: < +8bp

 

Cix:
100*(yield[FRTR 1.5 05/25/50 Govt]-0.8*yield[EU 0.3 11/04/50 Govt]-0.2*yield[PGB 4.1 02/15/45 Govt])

Weightings:

(as per shape of fitted credit curve)

80 / 100 / 20

 

 

Rationale

• EU will continue to be a large Issuer and is rich
• France has got through the 50y syndication
• France trades Cheap
• Spain not really cheapening with deterioration in Italy spread and starts to look rich

 

Germany 10y 0% Feb31 supply next week

 

German Feb31s and 35s are top of the anomaly to the fitted curve

*curve fit to var weighted smooth yields

Graph – German Anomaly Values vs fitted curve

 

Cix:
(2 * YIELD[DBR 0 02/15/31 Corp] - YIELD[DBR 0.25 08/15/28 Corp] - YIELD[DBR 4 01/04/37 Corp]) * 100

 

Levels

Current: -0.3bp
Enter: 0.5bp (33% risk)
Add: +2.5bp (67% risk)

 

Target: -3bp

 

Graph –Actual German Forwards

 

Rationale

• Dbr 0% Feb 31 is best point in forwards give absolute value and forwards roll
• Supply is being discounted via this mechanism
• Aug 28 rolls into the 7y segment – new Dbr Nov 2028 7y coming on April 28^th
• Dbr 37s rolls towards the 15y point – New 15y Dbr May 2036 on March 3rd

 

Btps High / Low coupons have almost converged

In some sectors when we discount all the cashflows using a BTP zero coupon curve , we find almost no true premium for low price bonds, which suffer less in an exogenous shock to the BTP curve

With Conte risking an election this is a good time to access default / redenomination trades on long tenors for close to zero premium

 

Buy Btps 3.1 Mar40 Sell Btps Aug39

Levels

Current: +7bp
Enter: +6.8bp
Target: +2bp

 

Graph – BBG govt exponential Spline spreads – cashflows fully discounted to Italian theoretical curve

 

Rationale

• On a fully discounted cash-flow basis the Mar40 are ‘fair’ to the higher coupon Btps Aug39 – this represents close to zero  premium for Low coupon vs High coupon
• Mar 40 are no longer the tap bond 20y and roll to a richer medium segment of the curve
• Aug39 are high coupon and roll towards cheaper Btps Feb37
• Spread is close to it’s all time wide
• The trade is an extension in modified duration terms of 1.5 yrs – we favour flatteners in a weak credit environment

 

Spread History

 

Holland

Nether: new 10y announced – Nether Jul 31s € 4-6 bln

Coupon TBA Feb 8^th 2021  DTSA:
https://english.dsta.nl/news/news/2021/01/20/new-10-year-benchmark-bond-reopening-dsl-2025-and-update-issuance-calendar-first-quarter-2021

 

The discount in New 10yrs makes 12y look rich

Nether 2.5% jan33 already look rich to the Nether 30 – see forwards graph….

 

If we add in the new Nether jul31 at a spread of +6.4bp (equal to the old roll of nether 29s/30s) – we can see how the 33s look even richer to the new 31s….

 

 

 

 

Trade:
Nether Buy outgoing 10y / Short Nether 33
current level -6.6bp
enter: -7bp
Target: -11bp

Rationale

• The old ten yr rolls down the curve
• The new issue even at the old roll spread will avail the 33’s as rich

 

Any other thoughts and questions pls give us a call

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

                Hi,

Some thoughts on RV trades

 

            Trade 1

Italy – IK/RX more choppy, loses its momentum

• Long Medium Coupon / Short High Coupon for low Cost of Carry and Longer Time-Value
• Buy Btps 3.1% Mar40, Sell Btps 5% Aug39

 

Level : +6.8bp

Target: +3.75bp, first level

 

Graph 1 – Yield spread -Aug39 +Mar40

 

On a fully Cashflow discounted Basis (BBG Exponential Spline) – the High Coupon Aug39 is at the boundary condition (dotted red line) created by richer, Medium coupons

 

Graph 2 – BBG exponential spline spreads (cashflows fully discounted to Italian Discount Curve)

 

Carry

COC -0.4bp / 3mo @-10 repo spread

 

IF you want to have a go at working this please let us know

 

If these emails are not your flavour, or indeed you need us to look at other stuff please let us know

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

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

 

 

 

 

RV Trades on our Radar for the coming week

 

            Spain

• Supply on Thursday – 2026, 2027, 2035, 2040
• Has richened as a credit after the heavily subscribed 10y Syndication but did trade much richer last year

 

 

As a credit…

Spain vs France (OATH1) & Italy (IKH1)

 

Graph of long SP vs FR & IT

100*(yield[SPGB 1.25 10/31/30 Govt]-0.5*yield[FRTR 2.5 05/25/30 Govt]-0.5*yield[BTPS 3.5 03/01/30 Govt])

• As a tactical trade, if you’re bearish Spain as a name, we have Finland 9y coming on Tuesday, which offers the chance to dramatically improve credit quality on one side of a credit fly…

 

Trade Radar 1…

Short Spain, Long Finland and Italy (IKH1) – 9y maturities

The Long, Finland -  scarce issuer

                                The Short, Spain – Large issuer with the need to raise funds even after PEPP is taken into account

Also Long Italy Credit - protect against the ECB being on the buy-path

 

                                Graph of long Spain vs short Finland & Italy – we want to get short Spain

cix: 100 * (YIELD[SPGB 1.25 10/31/30 Corp] - 0.5 * YIELD[RFGB 0 09/15/30 Corp] - 0.5 * YIELD[BTPS 3.5 03/01/30 Corp])

 

Looking for < -1.5 bp to get on board

 

Trade Radar 2…

On the curve, shortening up looks too flat in terms of forwards -
Our trade is Sell Spgb 46 & Buy Spgb 1.2% 40 (tap bond) – looks totally boring in terms of history but there’s hidden value

Levels:

Current: -14.5 bp
Target: -13.75 bp

Range: -15.5 / -13 bp
Target beyond bottom of Range – the forwards are just plain wrong

 

Forwards

 

In France on Thursday, we have supply 2024, 2026, 2028 – € 8,5 – 10 Bln

Not a lot to say here – in France the 28s are a touch rich to the fit (-0.2bp BBG Expo Spline fit) but nothing major
At the margin, I’d be taking France down vs Spain and Germany on a 50/50 weighting but there’s not a lot of var and tough to constrain the trade without a lot of bid/offer

 

Graph - Long France 28s vs Germany 7y and Spain…

100 * (YIELD[FRTR 0.75 11/25/28 Corp] - 0.5 * YIELD[DBR 0 11/15/27 Corp] - 0.5 * YIELD[SPGB 1.4 04/30/28 Corp])

 

Current lvl: -3.25 bp
Enter: -1.5 bp

At this entry level, France would look really cheap vs neighbouring issuers in terms of credit quality. This is for a quick reversion to -5bp and no more. I’m struggling to see how to cover Friction costs

 

One way to handle it is to…

 

Trade Radar 3 …

+France Nov28 – Germany Nov27

& 20% -ik/+rx

 

The credit hedge (-ik/+rx) is super liquid, so we just have to do France/Germany into supply…

Love a Wednesday trade in France!

 

Cix:
100 * ((YIELD[FRTR 0.75 11/25/28 Corp] - YIELD[DBR 0 11/15/27 Corp]) - 0.2 * (YIELD[BTPS 3.5 03/01/30 Corp] - YIELD[DBR 0 02/15/30 Corp]))

 

Graph – Long France 28 vs Germany 27 with 20% ik/rx hedge

 

Levels

Enter: +2bp and +3bp,

These look great levels to enter and we know we only need another 1bp or 2bp to make the Bond look cheap to other similarly rated names – see the credit anomaly Graph

Target: -1.5bp

 

                        Graph – Credit Anomaly, Z-spread vs Rating Score 7-8y Europe

 

One to keep an eye on, and this kinda more micro trading might be our stock in trade for a low VAR 2021, who knows!

 

Germany

On Wednesday we get a tap of the German 30y – Dbr 0% 50, € 1,5 Bln

We’ve seen a decent steepening in the 25s 30s yld spread – the buxl CTD (Dbr 46) into the Dbr 48 looks a decent pick to us

 

The 2048s will be tapped on February the 17^th (€ 1,5Bln) so am looking to scale into this one – but on these leveraged spreads in the back end, it’s tough to move the yield spread much more without a big move in the forward

 

Trade Radar 4 …

-UBH1 / +Dbr 48

 

Levels

Enter: +5 bp

Add: +5.75 bp
Target: +3.75 bp

At +3.75bp the forwards look smooth

 

 

Forwards…

 

                         UK, Next week brings the syndication of the UKT 0.875% Jan 31 2046

 

https://www.dmo.gov.uk/media/17210/pr120121a.pdf

On forwards I see Fair value  @ +4.5bp vs the UKT 41

 

                           Forwards @ 41s +4.5bp…           

              

 

Where it comes, I leave to the experts but it has value to 41s @ around +7bp – that would give you forwards flat from 41s to 46s which is inverted on the rest of the bond curve and Sonia curve

 

Forwards @ 41s +7bp…

 

We have to be a little careful in selling some of the nearby high coupons – they’re low duration bonds,  and their relatively high coupons have value in a positive curve that simply looking at yield does not reveal

 

When we adjust for discounting according the correct zero rates for maturity only the HC 4.75 38 look truly rich

 

For me the structure would be

+UKT 46s

-Ukt 41s & -ukt57s

 

33% of risk @ > +7bp to 41s

67% of risk @ > +8.5bp to 41s

If it doesn’t get there?... Move along, nothing to see..

 

All the Best & let us know your thoughts

 

Here to transact

 

 

 

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

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

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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