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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FW: Trade Idea - Btps Roll ahead of 10y Supply next week

Trade Idea – Sell Italy 10y to buy Double Old 10y

Trade Mechanics

Sell €100k Btps 2% 2/2028 to Buy €100k Btps 2.2% 6/27

Levels

Currently: @ -10.2 bp, (1.3bp per quarter)
Entry: @ -10.2 bp
Target: @ -12 bp
Add: @ -9.5 bp
Stop @ - 8bp

Trade History

BBG

Rationale

Italian 9y to 10y segment is as flat as stronger credit markets – despite being almost twice as steep on average (XY scatter of Italian yields vs Germany, gradient = 1.88)
We have Italian supply next Wednesday (30^th May) in the 5y and 10y
The move is a function of the recent widening in Italy – looking at the ratio of the gradient of It/Ge, it seems a reasonable point to start to fade that move (notwithstanding suppl)

Cix: (RV0005P 10Y BLC Curncy - RV0005P 2Y BLC Curncy) / (RV0002P 10Y BLC Curncy - RV0002P 2Y BLC Curncy)

German 6 month 10y roll value +6.8bp, ≈ 1.1bp per quarter

France 6 month 10y roll value +6.6bp, ≈ 1.1 bp per quarter

Small coupon mismatch – avoids buying the cheaper higher coupons, which carry greater default cost (trade cheaper in widening spread environment)
On relative Z-Spread – here’s how it looks

Speak soon

James

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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

Euro Govt RV - The week ahead. James Rice Astor Ridge

Good Morning and Happy Monday – I’m OOO for the next two days but should be logged in remotely on and off. Let me know what you need and good luck this week

Some thoughts on the two weeks ahead – Monday 21^st May to Friday 1^st June (day before my birthday!)

Supply – Issuance becomes a bit more of a snorathon, with US and Italy being the only interesting point to me!

Trades

1) –Italy 10s30s flat vs Core - anomalies & supply the kicker

Mechanics
Sell Btps 30y to buy old 26y
& 7% curve hedge -RX/+UB

Target entry: -10.25bp

Cix: 100 * ((YIELD[BTPS 4.75 44 Corp] - YIELD[BTPS 3.45 3/48 Corp]) - 0.07 * (YIELD[DBR 3.25 7/42 Corp] - YIELD[DBR 0.25 2/27 Corp]))

Z-Spreads vs Germany – Graph

2) Re-enter anomaly – Btps -36s +38s -47s

Mechanics
Btps: -36 +38 -47
Weighting: -1.34/ +2 / -0.66

Target Entry: +10bp

Cix: 200 * (YIELD[BTPS 2.95 9/38 Corp] - 0.67 * YIELD[BTPS 2.25 9/36 Corp] - 0.33 * YIELD[BTPS 2.7 3/47 Corp])

Z-Spread history

Trade 3

French 30 yr rich on the credit fly vs Germany & Italy
The widening of Italy appears to be idiosyncratic, but over the long haul Euro Stresses get represented in a widening of all issuers as ‘the Great Experiment’ comes under pressure

Mechanics
Short France 30y, Long Btps 30y & German 30y

Weighting: +1 / -0.25/ -0.75

Target Entry: pay the spread @ -15bp

Cix: 200 * (YIELD[FRTR 2 48 Corp] - 0.75 * YIELD[DBR 1.25 48 Corp] - 0.25 * YIELD[BTPS 3.45 48 Corp])

Check for optimum issue selection

Graph

Long Term History – 5yr History of French 30y vs Germany and Italy using generics

RV0004P 30Y BLC Curncy - 0.75 * RV0002P 30Y BLC Curncy - 0.25 * RV0005P 30Y BLC Curncy

Model Trades update

Belgium +27 -31 -37
Take profit…

200 * (YIELD[BGB 1 31 Corp] - 0.5 * YIELD[BGB 0.8 27 Corp] - 0.5 * YIELD[BGB 1.45 6/37 Corp])

Spain 21s vs 22s & German curve Hedge – keep! – plenty more value left for 22s to cheapen – see z-spread graph above

100 * ((YIELD[SPGB 0.4 4/22 Corp] - YIELD[SPGB 0.05 1/21 Corp]) - 0.5 * (YIELD[DBR 1.5 2/23 Corp] - YIELD[BKO 0 3/20 Corp]))

Italy 7y roll vs German contract hedge – keep – trade @ +9 to give at +6bp
100 * ((YIELD[BTPS 1.45 5/25 Corp] - YIELD[BTPS 1.45 11/24 Corp]) - 0.12 * (YIELD[DBR 0.25 2/27 Corp] - YIELD[DBR 1.5 2/23 Corp]))

France 39s into Austria 24s as defensive anti-Italy play – keep

UK +47 -57 +68 – keep, has a little further to go as concave bond shape vs swaps moves out to longer tenors
200 * (YIELD[UKT 1.75 57 Corp] - 0.5 * YIELD[UKT 1.5 47 Corp] - 0.5 * YIELD[UKT 3.5 68 Corp])

Default positions/views

Trying to shorten up in weaker credit curves for equal z-spread vs
Germany
Not fading Italy sell-off until the ratio of 2s10s Italy vs 2s10s Germany is greater than a FACTOR OF 2 - see graph

Cix: (RV0005P 10Y BLC Curncy - RV0005P 2Y BLC Curncy) / (RV0002P 10Y BLC Curncy - RV0002P 2Y BLC Curncy)

Bias around being short supply points if rich
Bias to buy supply point on day before the event if cheap
Expect relative gradient’s of Euro curves to express credit worthiness – weaker credits steeper
Stay informed of default behaviour of curves – long end flattening, performance of low coupons
Regressing swap spread pairs to the generic move in credit swap rates – as represented by IKM8 vs MMS – see graph

Cix: SP210[BTPS 4.75 9/28 Corp]

Let me know if there’s anything else you’d like to see

Speak soon

James

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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

Trade Idea - France into Austria 2034s - James Rice, Astor Ridge

Austria 15y offers value vs France 15y tap point – (2034 maturities)

Trade Mechanics

Buy €50k Ragb 2.4% 34, Sell €50k Frtr 5/34 1.25 34 @ -5bp
Sell IK/ Buy RX futures € 2,5k/01 (-22 IK / + 18 RX)

Trade Levels

Bond Yield Spread @ -4.9bp
Structure @ -12.4bp
Entry @ -12.5bp
Add @ -11bp
Target @ -15bp
Stop @ -8.5bp

Trade History

100 * ((YIELD[RAGB 2.4 34 Corp] - YIELD[FRTR 1.25 34 Corp]) - 0.05 * (YIELD[BTPS 4.75 9/28 Corp] - YIELD[DBR 0.25 2/27 Corp]))

Rationale

French 15yr looks rich on its curve – see Z-spread graph
Trade is close to an extreme on history – see graph of simple yield spread between the bonds – Graph 2, bond yield spread
French supply in the long end is due on June 7^thand July 5^th, it’s a possible tap issue (last reopened May 3^rd €1,24 Bln, total issue size €5,6Bln – the prior 15yr, Frtr 31s was reopened in consecutive months in Jan & Feb 2016 at as similar stage and twice in the April 2016)
On a regressed basis versus the relative swap spreads look stretched vs the Italian 10y futures swap spread (representing to generic credit component of curves) – (see graph, longer history of France 36s vs Ragb 34 spread of spreads)
10yr spread of Austria vs France – shows France as Rich vs regressed Italy / Germany – see Graph
Rating differential – Austria S&P AA+/ Moody’s Aa1 (outlook stable), France S&P AA (stable) Moody’s Aa2 (positive)

Graphs

Graph 1, Z-Spread Graph

– European Core & semi – Core Z-spreads vs Germany

Graph 2, Bond Yield Spread

Graph 3, Regression of Austria/France 34s, Spread of Spreads (using Frtr 36s for longer history), regressed to the IK swap spread (as indicator of generic credit risk)

cid:<a href= image009.png@01D3EC5A.1CBBD540">

Graph , History of Austria vs France in 10y with 3% -ik/+rx hedge – France Rich

100 * ((YIELD[FRTR 2.75 27 Corp] - YIELD[RAGB 0.5 27 Corp]) - 0.03 * (YIELD[BTPS 4.75 9/28 Corp] - YIELD[DBR 0.25 2/27 Corp]))

Risks

Continued Real Money Buying in Frtr 15y keeps it rich
Austrian Finance Agency could tap the 2034s (next scheduled is June and July) – last tapped Jan 26^th 2018, each auction is approx €1,2Bln of two issues
The repo on the two dons becomes egregious

Carry and Roll

Bond Carry & Roll -0.2bp / 3mo (-15bp repo spread)
Futures hedge -0.3bp / 3mo (5% weighting)

Best

James

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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

Week ahead, James Rice Astor Ridge

This week…

Radar Trades

Trade 1 – Italy cheap 7y supply

Structure

{IT} Italy -11/24 +5/25
&12% +OE/-RX, curve hedge

Current: @ +8.4bp
Enter: @ +9bp

Target: +7.5bp

Cix: 100 * ((YIELD[BTPS 1.45 5/25 Corp] - YIELD[BTPS 1.45 11/24 Corp]) - 0.12 * (YIELD[DBR 0.25 2/27 Corp] - YIELD[DBR 1.5 2/23 Corp]))

Trade 2 – Belgium 31s rich, bond repo was tight now easing but still looks like one of the richest 13yr bonds vol adjusted

Structure

{BE} -31 +33
&25% +RX/-UB, curve hedge

Current: @ -0.5bp

Enter: @ -0.5bp
Target: @ -4bp

Cix: 100 * ((YIELD[BGB 3 34 Corp] - YIELD[BGB 1 6/31 Corp]) - 0.25 * (YIELD[DBR 3.25 7/42 Corp] - YIELD[DBR 0.25 2/27 Corp]))

Trade 3 - Austria 10y cheap to France, France richening on the ‘blend’ (mix of Italy and Germany) as Italy widens, yet Austria has stayed soft

Structure

{AT} {FR} -5/27 +4/27

& 3% +IK/-RX

Current: @ -3.3bp

Enter: @ -4bp
Target: Flat

Cix: 100 * ((YIELD[FRTR 2.75 27 Corp] - YIELD[RAGB 0.5 27 Corp]) - 0.03 * (YIELD[BTPS 4.75 9/28 Corp] - YIELD[DBR 0.25 2/27 Corp]))

Trade 4 – Italy 32s rich

Structure

{IT} +IK -32 +38
Current: @ -16.7bp
Enter: @ -17.5bp
Target: @ -14bp

Cix: 200 * (YIELD[BTPS 1.65 3/32 Corp] - 0.5 * YIELD[BTPS 4.75 9/28 Corp] - 0.5 * YIELD[BTPS 2.95 9/38 Corp])

Main Euro Issuers ‘normalised’ spread to swaps

(*issuer curves are normalised based on a vol/gradient metric to make them comparable to € swaps)

Thanks for any feedback

Best,

James

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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

The week ahead - James Rice, Astor Ridge

Some thoughts on the week(s) ahead particularly for the UK syndication in 2 weeks

* Friday 4th

Payroll - fr & sp non-comps

* Tues 8th

{US} US 3y

{GE} German 30 + 46 linker

{NE} Netherlands 10y

{AS} Austria 10y & 30y

* Wednesday 9th

{GE} German 30y

{US} US 10y

{GB} UK 10yr

* Thurs May 10th

{IR} Ireland Bonds poll Friday for Monday announcement

{US} US 30y

* Friday May 11th

{IT} Italy 3y, 7y & ?

* Tuesday 15th

{GB} gilt 71 syndication big risk event >£5bln

* Wed 16th

{GE} Germany 10y

Most interesting event is the UK 2071 new ultra, week after next – at potentially more than $5bln this is one of the largest risk events in the UKT market

Barbell opportunity – short UKT 57s and long UKT 47s and the new issue via UKT 68s

Estimated set up details -coming week of May 14th

UKT estimated coupon 1.625% (TBA), Maturity Date Oct/22/2071
First Settle Date May/16/2018, Interest Accrual Date May/16/2018
Flat to 1bp through the UKT 3.5% 2068

Analysis

Typically we look at the Gilt curve versus swaps
However the differential in the overall gradient of the swap curve vs the Bond curve can make it difficult to pick out value
The UK curve is on average 62% steeper than the swap curve
If we ‘rotate’ the swap curve to compensate for the broad differences in gradient we get a different metric
We adjust for high/low coupons in bond value in a positive curve by subtracting Swap Spread and adding Z-Spread
We now look at anomaly value in that framework

So to me, it seems that a possible end game is to end up with:

Bonds: +47 -57 +71
Weightings: +1/-2/+1

And the natural stepping stone is to do it via

Bonds: +47 -57 +68

and then bounce the 68s into the 71s at the time of pricing – timing is key

Index for 30s40s50s in UKT

Bonds: +47 -57 +68
Weightings: +1/-2/+1

200 * (YIELD[UKT 1.75 57 Corp] - 0.5 * YIELD[UKT 1.5 47 Corp] - 0.5 * YIELD[UKT 3.5 68 Corp])

Here’s how that index looks relative to swaps – is there an ‘edge’ vs generic swap market moves?

SP208 is the BBG field for Z-Spread

2 * (SP208[UKT 1.75 57 Corp] – 0.5 * SP208[UKT 1.5 47 Corp] – 0.5 * SP208[UKT 3.5 68 Corp])

Recently the UK 30s50s swap curve has normalised to around -13bp

This normalisation has been reflected in a cheapening of the 50yrs (68s) ahead of supply but not so much in the 57s, hence the desire either to see 47s57s steepen and/or 57s68s to re-flatten

UK Swaps 30s50s dis-inverting

I’ll send some more complete details next week but with a short week coming up this thing will be on us before we know it.

As for Austria, Nether and Germany etc there are some value anomaly situations – but historically we need a pull-back I think to have a better Sharpe ratio. That said the market seems in a value compression mode – witness the Spain 50y which looked ‘ok’ but went really well with out a huge RV pull-back – so am tempted to say that if something looks reasonable value but not amazing historically then have a little bit on to not miss the move – but with room to add

Best

James

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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

Wednesday 2nd May - Euro Govt Trade Ideas, James Rice Astor Ridge

Trade Idea

3y vs 4y Spain too flat versus the more credit worthy issuers

Sell Spain 0.4% Apr 22 to buy Spain 0.05% Jan 21 vs Germany or Swaps

Mechanics

Buy €50k Spgb 0.05% Jan 21 (180,7MM), Sell €50k Spgb 0.4% (124,2MM), @ -19.5bp
Sell €25k (1192 lots) DUM8 contracts, Buy €25k (408 lots) OEM8 contracts
cix: 100 * ((YIELD[SPGB 0.4 4/22 Corp] - YIELD[SPGB 0.05 1/21 Corp]) - 0.5 * (YIELD[DBR 1.5 2/23 Corp] - YIELD[BKO 0 3/20 Corp]))

Levels

Currently @ -3.9 bp
Target @ +2 bp
Expected Profit +5 bp
Add @ -6.5 bp
Stop @ -10 bp

Rationale

Tomorrow brings a tap of the Spanish 0.05% 1/21 – the bond looks over discounted for supply during Golden Week and the May Day week
When looking at lower credit quality issuers such as Spain vs Germany, their curves are typically steeper

E.g. (on average); Italy is approx. 75% steeper than Germany, Spain is 50% steeper than Germany, France is 15% steeper

As a loose boundary condition is for a weaker credit issuer to be no flatter than the German curve
The trade is also at an extreme vs swaps

Graphs

Graph 1 – CIX of total package

Graph 2 – Bond Yield Spread

Graph 3 – European Yield Curve, Spain Jan 21s highlighted

Graph 4 – Relative Swap Spreads

Carry & Roll (per 3mo, contract CTDs using implied repos)

Spain Carry -1.3bp/3mo (15bp repo spread)
Spain Roll -0.6bp/3mo
German Hedge Carry +2.4bp (23bp implied repo differential, half PV01)
German Roll +0.5bp (half PV01)

Net Carry & Roll +1bp

Risks

A continuing flattening of the Spanish curve Causes 4/22 to outperform
An extreme flight to quality could cause the German curve to steepen
The Spgb 4/22 trade more special on repo and richen further

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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 7yr trade idea - sell the 7y supply point

In Italy - 7 years are getting close to fair

I look at the following fly, but they all look similar showing 7yr as relatively rich

{IT} -6/21 +12/24 -ik

-.8/+2/-1.2

200 * (YIELD[BTPS 2.5 12/24 Corp] - 0.6 * YIELD[BTPS 4.75 9/28 Corp] - 0.4 * YIELD[BTPS 0.45 6/21 Corp])

which is on its lows - but also is below zero on Z-Spread too ...

2 * (SP208[BTPS 2.5 12/24 Corp] - 0.6 * SP208[BTPS 4.75 9/28 Corp] - 0.4 * SP208[BTPS 0.45 6/21 Corp])

So, unless the 7y & 8y sector in Italy catches a real flow based or index bid (as it has in Fr and Ge) then I think 7 yrs are a sell given that we get regular monthly supply - next due Fri 11th May

Am working on some structures to best capture that

Trade

He's one idea I like

{IT} +4/22 -3/26 +ik (9/28)

bit tight in structure but plays the fact that the high coupon mar 26 now look rich to the new issue 5/25s that will be tapped this month

200 * (YIELD[BTPS 4.5 3/26 Corp] - 0.33 * YIELD[BTPS 1.35 4/22 Corp] - 0.67 * YIELD[BTPS 4.75 9/28 Corp])

currently at +4.5bp, would do some here and add in 1bp to 1.5 bp time, target 9 bp for modest correction

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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

The Week Ahead Euro Govts - James Rice, Astor Ridge - a quick look, more today!

Good morning, apologies for sending this again. Just some quick thoughts as we come into May and the long Weekend ahead

I’ll update with some of the Model P/F trades and what we’re thinking

Week: Monday, 30^th April – Friday 4^th April

Supply

Wednesday 2^nd May

German 5y, €3Bln

Thursday 3^rd May

France 8y, 10y, ‘15y’, 30y (26s, 28s, 34s, 48s) €7,5 – 8,5 Bln
Spain – 3y, 10y & 50y
UK 5y 2023 £3 Bln

Risk Relationships / Events

It/Ge spread on the narrows
See Peripherals as historically rich (yields low)
See U.S. as historically cheap (yields high)
Better receiver bullets vs wings in major butterfly structures; 5s10s30s & 2s5s10s
See semi core (France) as rich vs Blend of Core and Germany, just starting to cheapen
Nonfarm payrolls – May 4^th

Ideas

FRANCE 15YR TO CHEAPEN FURTHER as a tactical trade into supply

15yr sector generally trades rich in all the main Euro issuers

– on a swap and vol. adjusted basis the BGB 31s, Italy 32s appear richest with the new French 34s following shortly after

The Frtr 5/28 issuance next Thursday is a cheap tap point (28.6bln issues size) and this tap would make it consistent with old and double old French 10yrs issue sizes (31.5bln & 30.2Bln respectively). Hence this could be the last tap of the 5/28 and the time for it roll to the rich 8y, index duration sector

The low coupons of the French 12y to 15y sector bely an absence of cash flow value relative to their wider neighbours

Sell French 15y to buy French 10y vs +RX/-UB

100 * ((YIELD[FRTR 1.25 5/34 Corp] - YIELD[FRTR 0.75 5/28 Corp]) - 0.6 * (YIELD[DBR 3.25 7/42 Corp] - YIELD[DBR 0.25 2/27 Corp]))

This relationship could move higher as the French 34s soften to absorb supply -as we go into next week’s auction

Spain 1/21 vs 4/22 too flat vs Germany

The tap point 1/21 looks super cheap on z-spread relative to local bonds and also the same points in Germany, indeed it’s approx. as flat as the German Curve in Z-Spread terms, which would be a boundary condition for a credit issue relative to Germany
Coupled with a bearish view on peripherals this is a really soft play on spread wideners – Spain vs Germany

As always for liquidity, I prefer expressing the trade vs a reduced wider spread of two German contracts (ctds used)!

100 * ((YIELD[SPGB 0.4 4/22 Corp] - YIELD[SPGB 0.05 1/21 Corp]) - 0.5 * (YIELD[DBR 1.5 2/23 Corp] - YIELD[BKO 0 3/20 Corp]))

Looking for this relationship to head BACK TO 0

RADAR TRADE – supply trade in UKT 23s – not yet at target

One of the challenges with supply in Govt F.I. markets at the moment is to try and ‘call’ the cheap levels at which RV might take down a re-tapped issue

One such issue is UKT 23s, to be tapped next Thursday – this issue first came in Jul 2017 and has been tapped 8 times since and will indeed be tapped again on 6^th June

The swap curve and bond curves are slightly different shapes – by applying a shift and a magnification to the swap curve vs the we can get another perspective on Gilt RV… one that is more empathetic to the gradient and initial point differences between swaps and bonds – (UK bond curve ≈ 1.65* uk swap – 1.03%)

So the structure that is on my radar is

200 * (YIELD[UKT 0.75 23 Corp] - 0.5 * YIELD[UKT 4 3/22 Corp] - 0.5 * YIELD[UKT 2 25 Corp])

Looking for > +15bp – let’s see what next week brings

Best

James

James Rice

image001.jpg@01D21F13.B69A4950">

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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

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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 Euro Govts - James Rice, Astor Ridge - a quick look, more on Monday

Week: Monday, 30^th April – Friday 4^th April

Supply

Wednesday 2^nd May

German 5y, €3Bln

Thursday 3^rd May

France 8y, 10y, ‘15y’, 30y (26s, 28s, 34s, 48s) €7,5 – 8,5 Bln
Spain – 3y, 10y & 50y
UK 5y 2023 £3 Bln

Risk Relationships / Events

It/Ge spread on the narrows
See Peripherals as historically rich (yields low)
See U.S. as historically cheap (yields high)
Better receiver bullets vs wings in major butterfly structures; 5s10s30s & 2s5s10s
See semi core (France) as rich vs Blend of Core and Germany, just starting to cheapen
Nonfarm payrolls – May 4^th

Ideas

FRANCE 15YR TO CHEAPEN FURTHER as a tactical trade into supply

15yr sector generally trades rich in all the main Euro issuers

– on a swap and vol. adjusted basis the BGB 31s, Italy 32s appear richest with the new French 34s following shortly after

The Frtr 5/28 issuance next Thursday is a cheap tap point (28.6bln issues size) and this tap would make it consistent with old and double old French 10yrs issue sizes (31.5bln & 30.2Bln respectively). Hence this could be the last tap of the 5/28 and the time for it roll to the rich 8y, index duration sector

The low coupons of the French 12y to 15y sector bely an absence of cash flow value relative to their wider neighbours

Sell French 15y to buy French 10y vs +RX/-UB

100 * ((YIELD[FRTR 1.25 5/34 Corp] - YIELD[FRTR 0.75 5/28 Corp]) - 0.6 * (YIELD[DBR 3.25 7/42 Corp] - YIELD[DBR 0.25 2/27 Corp]))

This relationship could move higher as the French 34s soften to absorb supply -as we go into next week’s auction

Spain 1/21 vs 4/22 too flat vs Germany

The tap point 1/21 looks super cheap on z-spread relative to local bonds and also the same points in Germany, indeed it’s approx. as flat as the German Curve in Z-Spread terms, which would be a boundary condition for a credit issue relative to Germany
Coupled with a bearish view on peripherals this is a really soft play on spread wideners – Spain vs Germany

As always for liquidity, I prefer expressing the trade vs a reduced wider spread of two German contracts (ctds used)!

100 * ((YIELD[SPGB 0.4 4/22 Corp] - YIELD[SPGB 0.05 1/21 Corp]) - 0.5 * (YIELD[DBR 1.5 2/23 Corp] - YIELD[BKO 0 3/20 Corp]))

Looking for this relationship to head BACK TO 0

RADAR TRADE – supply trade in UKT 23s – not yet at target

One of the challenges with supply in Govt F.I. markets at the moment is to try and ‘call’ the cheap levels at which RV might take down a re-tapped issue

One such issue is UKT 23s, to be tapped next Thursday – this issue first came in Jul 2017 and has been tapped 8 times since and will indeed be tapped again on 6^th June

The swap curve and bond curves are slightly different shapes – by applying a shift and a magnification to the swap curve vs the we can get another perspective on Gilt RV… one that is more empathetic to the gradient and initial point differences between swaps and bonds – (UK bond curve ≈ 1.65* uk swap – 1.03%)

So the structure that is on my radar is

200 * (YIELD[UKT 0.75 23 Corp] - 0.5 * YIELD[UKT 4 3/22 Corp] - 0.5 * YIELD[UKT 2 25 Corp])

Looking for > +15bp – let’s see what next week brings

Best

James

James Rice

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

US: 245 Park Ave 39^th Fl, New York NY 10167

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