GLOBAL INVESTMENT STRATEGY, EXECUTION AND RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS

Trade:  Gilt Fly: 1x2x1 wtd vs Sonia – buying the belly –  1.5% 7/26 x 1.75% 9/37 x 2.5% 7/65
Level:   +49.85bps
Stop:    +54bps                

Target: +40bps

Carry:  ~0.6bps postive/mo

 

Rationale:

• Last tap of the 37s which should make room for new 20y next year.
• 37s - Carry + Roll down best part of the Gilt curve.
• 15y or 20y vs ultra long curve has re-inverted – Pension dynamics/de-risking, RPI ruling still outstanding etc.
• APF done till Q2 next year, supply for the balance of 2019 will see one more longs - 49s in early Nov., and either

a linker or conventional syndicated deal some time in Nov.  Growing belief is more likely a conventional

for one or the other - 54s or 71s.

• Potential for more Gilt Issuance on the back of Fiscal Relaxation should lend itself to more long end supply.

 

 

We like the trade better vs Sonia – at the highs near +50bps. In bond yld terms(+63bps),  more volatility, larger range and recent correlation with directional input

 could see the fly cheapen further before finding resistance.

 

• 20y vs 45y Gilts Disinversion back to the lows.

 

 

 

 

 

• Carry & Roll – 15y – 20y Part of the Gilt Curve represent the highest levels.
• May want to have a look at 47 vs 37s to own in the belly, but our thinking is that there is still the 49s to come before year end and then a syndicated tap of 54s or 71s.

If 54s, could see congestion in 30yr sector – hence preference at this time for more 15yrs.

 

 

 

 

 

 

 

Thanks to GW for pitching in on this one…

 

GILTS > UKT 1H26s Repo

> RV guys we talk to have been watching 1H26s repo levels like hawks over the last 3-4 weeks as the issue has shown '225-esrue' behaviour, trading at GC-25 or more at times.

> The issue is trading GC-20bps this am so, while still well through GC, it's the first sign that the issue may not vanish from the mkt.

> Given the decline in the float of the issue to £13.5bn after the Sep/Oct APF purchases some are suggesting this will present a major problem going fwd and accounts are loathe to be short these 26s.

> We'd counter this view with the following:

1) It's no coincidence that the 1H26s repo heated up over the last 3 weeks of the APF. You know why? It's because THE BOE CAN NOT BE FAILED to. If you sell an issue to them during the APF you'd better come up with the bonds.

 

2) Here are some actively traded issues that have smaller floats than the 26s and show little sign of repo value:

2T24    £10.9bn

4Q27    £7.7bn

4T30    £7.8bn (H0 CTD)

4H34    £12.75bn

4Q36    £12.9bn

1T49    £8bn (tap soon)

4Q55    £11.8bn

1F71     £9.2bn

3) The next APF is in Mar/Apr '20 where the 26s will likely feature again. However, by then the 0F25s will be at/close to the end of the cycle and a new 26s issue will be on the horizon. No scarcity of eligible issues for the APF in 3-7yr bucket.

4) Lastly, the 1H26s's repo bid has been a relatively new phenomenon, contrary to the perma-bid the 225s have had. This is a different situation which we see as unlikely to be repeated, even with the 1H26s' proximity to the 225s.

 

So, if you're long the 1H26s because you expect them to stay rich in repo, we'd suggest it's time to lighten up.

 

 

Thanks,

 

Mark

 

 

 

Mark Funsch

 

O:            +44 (0) 203 - 143 - 4177

M:            +44 (0) 789 - 996 - 4051

E:             Mark.Funsch@AstorRidge.com

W:            www.AstorRidge.com

UK:          14-16 Dowgate Hill, London UK EC4R 2SU

US:          245 Park Ave, 39^th Floor, NY, NY, 10167

 

This research was prepared by Mark Funsch.  He is a consultant with Astor Ridge.  A history of his marketing commentaries 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 recommendations, those 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 clients 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

 

 

TRADE: Buy belly of UKT 26s28s30s @ +6bps (with 0.25bp discretion):

 

 

Stop:  +8 bps

Target:  +2 bps

 

Rationale:  Recent richening of UKT 26s and 30s in micro RV has left the UKT 28s looking cheap on bfly. With the severe concavity in the UKT 5s7s9s curve, the 9yr point stands out as very cheap given sharp rolldown, especially in the current reach for yield environment.

 

UKT 26s28s30s bfly – recent trend correction:

 

 

Drivers:

 

UKT 2.75 9/24–1.5 7/26–1.625 10/28 bfly – 26s richening into APF selling:

 

 

UKT28s30s32s – 30s also trending richer as they become CTD to March 2020 contract for 9 cycles:

 

 

 

The 26s28s30s will roll down to the the 24s26s28s in 2 years time – which trades over 21bps richer and is near recent wides:

 

 

UKT 26s28s30s bfly minus 24s26s28s bfly:

 

 

Carry on the UKT 26s28s30s fly is relatively flat assuming a repo spread of -11bps and -6bps on each wing.

 

Jim Lockard

Founder / Managing Partner

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

US: 12 EAST 49^th Street, New York NY 10017

Office: +44 (0) 203 -143 - 4172

Mobile: +44 (0) 7795-027-865

Email:  jim.lockard@astorridge.com

Website:  www.astorridge.com

 

This commentary was prepared by Jim Lockard, a Managing Partner at Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and it should be treated as a marketing communication even if it contains a research recommendation. A history of his commentary can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge does not engage in market making or proprietary trading, and has no position in any security discussed in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change.. Any recommendations contained herein reflect solely those of the author and were prepared independently of Astor Ridge or its affiliates. This publication does not constitute personal investment advice and may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate recommendations discussed herein. Actual investment returns may fluctuate as a result of changes in economic and market conditions (including market liquidity). 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 us is owned by us. 

 

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 0499303

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

 

LDI de-risking activity (see below) in the ultra long end coupled with recent 37s supply and yesterday’s 7-15yr final APF have caused the 20-30yr sector to look cheap, as well as micro RV dislocations in the 50yr sector.

 

“Allied Domecq agrees £3.8bn buy-in with Rothesay Life to take 2019 deals past £30bn”:

 

https://www.professionalpensions.com/news/4005358/allied-domecq-agrees-gbp-8bn-rothesay-life-2019-deals-past-gbp30bn

 

“This week has been a significant week for the insurer, as it announced two mammoth bulk annuity transactions, one of which is the biggest ever transaction to date. It announced yesterday that it agreed a £4.7bn buyout of the GEC 1972 plan, which made 2019 officially, a record-breaking year. Meanwhile, today it agreed a £3.8bn buy-in with the Allied Domecq Pension Fund in the market's largest deal to cover both pensioner and deferred members.”

 

UKT 30s50s (47s71s) reinverting to 1yr lows, conversely at much lower yield levels:

 

 

TRADES (in order of VAR):

 

1. Buy belly of UKT 65s68s71s @ +3.3 bps:

 

 

Stop:  4bps

Target:  2bps

 

Rationale:  In DMO consultations we recommend a nominal syndication (likely week 18 Nov) in 54s or 71s, either of which could cheapen the wings to the belly of this fly, which has been relatively stable and near multiyear extremes. The recent richening of 71s is likely due to pension de-risking and shifting out of RPI (linkers) into nominals. Given recent rise in mortality rates, flexible drawdown pensions, uncertainty around the future of RPI, and the scope to upsize 71s, I view the recent richening as an event driven aberration which presents an opportunity to fade. 

 

 

 

2. Buy belly of UKT 34s37s40s @ +11.75 bps:

 

 

Stop:  13 bps

Target: 8 bps

 

Rationale:  We have seen the last tap of 37s which will eventually make room for a new 20yr. The 37s roll down a very steep part of the 10s30s curve and should be favoured in the current reach for yield environment. Location – the fly is approaching Nov 2018 highs, when UK cabinet resignations caused FTQ bid in 10yr futures at the same time as a 37s tap drove the 10s20s curve sharply steeper (purple line below). The fly is near Nov 2018 highs despite 15 bps flattening in 4q27s37s curve since then.

 

 

 

3. Buy belly of 37s47s57s @ +19.75 bps:

 

 

Stop:  21.25 bps

Target:  16.5 bps

 

Rationale: The 47s are even cheaper than the 37s on this fly, due to recent richening of 50yr sector. Location – we are near all time highs of 21 bps, which occurred during FTQ and supply driven steepening of 10s30s in Nov 2018 coupled with year end de-risking in 50yrs (white line below). UKT 37s47s57s is also cheap to the 37s47s wing (yellow line below). In 2019, the fly has shown mean reverting tendencies; over the last 6 months the fly has traded in a well defined 16-20 bps range:

 

 

The UKT 47s57s leg of this fly is also approaching 1yr extremes:

 

 

 

4. Buy belly of UKT 26s37s65s bfly @ +62.5 bps:

 

 

Stop:  66 bps

Target:  55 bps

 

Rationale:  The 26s37s65s fly has cheapened nearly 20bps from August lows, much of it in the last 1.5 weeks, due to 37s tap (and exclusion from last 2 APFs) coupled with recent LDI de-risking in the 50yr sector. We are back near the 65 bps level which has held since May. The fly also enjoys positive carry of close to 8bps per annum.

 

 

 

 

Jim Lockard

Founder / Managing Partner

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

US: 12 EAST 49^th Street, New York NY 10017

Office: +44 (0) 203 -143 - 4172

Mobile: +44 (0) 7795-027-865

Email:  jim.lockard@astorridge.com

Website:  www.astorridge.com

 

This commentary was prepared by Jim Lockard, a Managing Partner at Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and it should be treated as a marketing communication even if it contains a research recommendation. A history of his commentary can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge does not engage in market making or proprietary trading, and has no position in any security discussed in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change.. Any recommendations contained herein reflect solely those of the author and were prepared independently of Astor Ridge or its affiliates. This publication does not constitute personal investment advice and may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate recommendations discussed herein. Actual investment returns may fluctuate as a result of changes in economic and market conditions (including market liquidity). 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 us is owned by us. 

 

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 0499303

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

 

OATs/SPGBs Into Supply - Few charts for you:

• OATZ9 daily - pennant formation after a period of consolidation. Current levels are first resistance before 171.00 and support at 169.50 before 168.60 area.

  

• FRTR 5/29s vs DBR 2/29s and SPGB 10/29s... Here's a chart of the 1-2-1 fly for brevity's sake (s/b -1.1/2.0/-.9 but close enough) - shows OATs are back to the cheapest levels since June.  Between Oct and Nov the OATs market will have 60bn in redemptions and ~25bn in cpns to digest.

 

 

• FRTR 5/26-5/29-5/34 fly – The 10yr sector has been trading on the cheap side of fair for the last couple weeks as the market anticipates a new 10yr. This should help attract some demand for this am’s new FRTR 11/29s (which have been trading around +4bps on the roll thus far).

 

 

• Spain has been grinding tighter vs DBR/FRTRs/NETHER, etc since their upgrade. One would think positioning is pretty long by now and with equities struggling to hold, we’re a tad concerned credit worries could surface, attracting profit taking sales. Check out this chart of the SPGB 4/26-10/29-7/33 fly – similar to the OATs one above. Looks like 10yr Spain is a tad richer, no?

 

• SPGB vs FRTR curves compared… Bull flattening in SPGBs more pronounced from 5-10s than in France…

 

 

We’ll be in touch…

 

Mark

 

 

 

Mark Funsch

 

O:            +44 (0) 203 - 143 - 4177

M:            +44 (0) 789 - 996 - 4051

E:             Mark.Funsch@AstorRidge.com

W:            www.AstorRidge.com

UK:          14-16 Dowgate Hill, London UK EC4R 2SU

US:          245 Park Ave, 39^th Floor, NY, NY, 10167

 

This research was prepared by Mark Funsch.  He is a consultant with Astor Ridge.  A history of his marketing commentaries 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 recommendations, those 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 clients 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

 

 

GILTS... 1T37 Tap & Last 15yr+ APF Today...

• Last Tuesday we sent out a note entitled 'Time to Start Buying UKT 1T37s' into this am's tap (see attached).

 

• Since then...

UKT 37-38s went from +3.4bp to +2.2bps this am

UKT 4Q27-1T37-4Q46 wtd fly richened from +1.9bps to +.8bps

UKT 4Q36 into 1T37 z-sprd flattened from +8 to +7.6bps

UKT 4H34-1T37-4Q46 fly (-.8/2.0/-1.2) has richened from +2.6bps to +1.0bps this am.

DESPITE these richening moves we still think there's further room for the 1T37s to richen from here.

1) 1T37s still have the best C&R on the curve.

2) Last week's 15yr+ APF operation saw selling of 38s and 39s which appear to have been shifted into 37s.

3) This is likely to be the last tap of the 1T37s before a new 20yr is announced.

4) Fiscal spending chatter should keep the 30yr point under pressure into Oct/Nov.

5) Nov syndication should be long-end conventional in our view.

6) Tomorrow's last 27-34s APF is likely to be the last hurrah for 34s in our view.

 

• The last 15yr+ APF is a crapshoot in our view. The RICHEST issues from the 4Q36s and longer are the 4H42s, 3Q44, 1T57s and 4 60. To date, none of these issues have featured at all in this 3T19 APF operation and with the 1T37s tap looming, there are several directions we could take: Sell MORE 47s>49s to raise some money to shift down the curve into 37s (and hope the curve doesn’t steepen much between 10:30am and 2:45pm); Sell more 38s and 39s, adding to last week’s totals; pre-empt the conventional syndication by dumping some 1F54s (even if they still look cheapish). Regardless of the direction the market takes, this is clearly the last time the market can dump a big chunk of UKTs DV01 onto the BoE before the Oct 31 Brexit deadline and the resumption of the DMO’s supply calendar.

 

Still like:

1) Selling 34s and 36s into 37s (yield flattener or boxed vs swaps)

2) Buy 37s vs .30 4Q27 and 11.7 X 46s...  Still elevated given where 10y5y Sonia trades.

3) buy 1T37s vs 4Q36 & 4Q40 on 1-2-1 fly, Still cheap vs SONIA even with 1bp+ richening.

Charts below.

 

We’ll be in touch…

 

Mark

 

 

Mark Funsch

 

O:            +44 (0) 203 - 143 - 4177

M:            +44 (0) 789 - 996 - 4051

E:             Mark.Funsch@AstorRidge.com

W:            www.AstorRidge.com

UK:          14-16 Dowgate Hill, London UK EC4R 2SU

US:          245 Park Ave, 39^th Floor, NY, NY, 10167

 

This research was prepared by Mark Funsch.  He is a consultant with Astor Ridge.  A history of his marketing commentaries 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 recommendations, those 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 clients 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

 

 

Business Briefing

1) Credit Suisse COO Bouee Resigns, Names James Walker COO

2) WeWork Bonds Hit Record Low After Company Pulls IPO Prospectus

3) Holiday Shoppers Weighing Carbon Footprint in Delivery Decisions

4) Trump Allies Giuliani, Pompeo, Barr Drawn Into Impeachment Focus

5) U.S. Utility That Overcharged $380 Million Now Wants to Spend It

World News Briefing

6) Xi Says China’s Rise Unstoppable in Face of Protests, Trade War

7) Giuliani Subpoenaed by House Democrats in Impeachment Inquiry

8) Johnson Confronts Moment of Truth for U.K.’s Brexit Strategy

9) Tens of Thousands Take to Hong Kong Streets for Holiday Protests

10) Trump Taps FERC General Counsel for Republican Seat on Regulator

Bonds

11) Investors Binge on Record $308 Billion of Company Bond Sales

12) Japan’s GPIF Positions Itself for More Foreign Debt Buying

13) Indiabulls Seeks Earlier Hearing After Record Share Slide

14) Bond Traders Sound Alarm in Japan With Weakest Auction in Years

15) Aussie Sinks as RBA Cements Bets for Further Easing: Inside G-10

16) World’s Biggest Money Manager to Add Indian Bonds After Selloff

Central Banks

17) Australia Cuts Key Rate as Global Threats, Unemployment Rise

18) Back to School: Program Offers Masters Degree in Central Banking

19) Gloomier Japanese Manufacturers Unlikely to Move Needle at BOJ

20) European Jobs Offer Some Joy Amid Manufacturing, Inflation Gloom

21) RBA Cuts Key Rate to 0.75%, as Seen by Most Economists Surveyed

22) TOPLive Starts: Follow Reserve Bank of Australia's Rate Decision

Economic News

23) Asia Factory Sentiment Remains Brittle Ahead of U.S.-China Talks

24) Japan’s Abe Rolls the Dice on His Political Legacy With Tax Hike

25) RBA Sees Economy Reaching ‘Gentle Turning Point’: TOPLive

26) India’s Big Fiscal Boost Leaves Many Questions Still Unanswered

European Central Bank

27) Lane Blames Trade Unease as Key Factor for Slower Europe Growth

28) EURO-AREA PREVIEW: Low Inflation to Support ECB’s Stimulus Plan

29) Draghi Says ECB Has Room to Do More, But Needs Fiscal Backup

30) Lagarde Inherits ECB Tinged by Bitterness of Draghi Stimulus

31) Draghi Calls for More Government Spending to Support Growth

Federal Reserve

32) Bankers Advising Fed Board Describe Libra as a Monetary Threat

33) U.S. Sept. Dallas Fed Manufacturing Outlook Survey (Table)

34) FastFT: US repo market pressure eases after Fed interventions
Preview text not available for this story.

35) Fed’s Williams Sees Need for More Reserves After Repo Spike (1)

First Word FX News Foreign Exchange

36) Credit Suisse Says No Indication CEO Approved Khan Observation

37) Peru’s President Dissolves Congress as Opposition Cries Foul

 

 

Mark Funsch

 

O:            +44 (0) 203 - 143 - 4177

M:            +44 (0) 789 - 996 - 4051

E:             Mark.Funsch@AstorRidge.com

W:            www.AstorRidge.com

UK:          14-16 Dowgate Hill, London UK EC4R 2SU

US:          245 Park Ave, 39^th Floor, NY, NY, 10167

 

This research was prepared by Mark Funsch.  He is a consultant with Astor Ridge.  A history of his marketing commentaries 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 recommendations, those 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 clients 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

 

 

 

Trade Radar: 30^th Sep – 4^th Oct

Italy

High coupons at extremely stretched levels

 

Trade:

• Sell Mar26s High coupon old CTD
• Buy and/or Nov25s / Jul26

 

Cix:

200 * (YIELD[BTPS 4.5 03/01/26 Corp] - 0.55 * YIELD[BTPS 2.5 11/15/25 Corp] - 0.45 * YIELD[BTPS 2.1 07/15/26 Corp])

 

Rationale

• The rally in Btps vs core has lifted all the high coupons
• Valuation of the boundary condition vs Low coupons is not clear – in that at the same yield and no default, High Coupons still have extra value – due to their modified duration in an upward sloping curve

 

Risks

• The repo goes tight on the Mar26
• High coupons continue to outperform in a Italy credit-positive scenario

 

France

Thursday’s tap in Apr55’s offers chance to get cheap high coupons

Trade:
Buy Frtr Apr55s
Sell 25% Apr41, Sell 75% May66
* curve weighted according to curve shape

 

Cix:

200 * (YIELD[FRTR 4 04/25/55 Corp] - 0.25 * YIELD[FRTR 4.5 04/25/41 Corp] - 0.75 * YIELD[FRTR 1.75 05/25/66 Corp])

History:

 

Rationale

• On a fitted curve basis (*adjusting for the benefit of H/L coupons in positive curve) the Apr55s show up as cheap and conversely the May66 and Apr41 are rich
• Positive carry +0.4bp /3mo @same repo (+0.2bp @10bp repo spread)
• Apr55s are a little cheap just from supply but were possibly a request from the dealer market which may still be short

 

Levels

• Enter at 0bp
• Target -3.5bp (loss of relative anomaly value vs wings)
• Stop @ +2bp

 

Risks:

• Apr 55’s stay offered
• A much steeper curve means this level of curvature could persist

 

Spain

Spanish rally makes the curve a ‘straight line’ – 10y rich vs 8y and 15y

 

Trade:
Sell Spgb Oct29
Buy 65% Apr27, Buy 35% jul35
* curve weighted according to curve shape

 

Cix:
200 * (YIELD[SPGB 0.6 10/31/29 Corp] - 0.65 * YIELD[SPGB 1.5 04/30/27 Corp] - 0.35 * YIELD[SPGB 1.85 07/30/35 Corp])

 

 

 

Graph of Spanish Anomalies – exponential fit to adjusted* yields

(*adjusted for coupon by removing the swap spread and adding the z-spread)

 

 

Carry:

Repo has ben tight on the Spgb oct29 -
@ repo spread of -20bp the trade is -0.8bp /3mo carry – expectin gthe repo to ease with the next supply

@ same repo the trade is negative carry of -0.3bp /3mo

 

Rationale:

• Just looking at the shape of the Spanish curve – the rally has removed any ‘curvature’ from expectations –
• Apr27 to Oct29 is +6.3 bp /yr
  Oct29 to Jul35 is +7.2bp /yr
  generally the longer tenor gaps should be flatter than the shorter ones
• The Oct29 is €12bln in size, it will continue to be tapped as the prior Apr29s is €21bln in size

 

Risks
Oct29 stays tight on repo with no post tap ease
A continued bullish edge to Spain benefits the 10y sector more than others

 

 

 

Hope this is interesting

Speak soon

James Rice

 

 

 

 

 

 

 

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

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BTPS... 5yr & 10yr Supply

> BTPS 7/24-2/25 5yr roll traded 150mm times in the bookies yesterday at +8.5bps which is around the +8/9 area we pegged in our preview. It's opening at +9.0bps this am which we think will be ample enticement for buyers, at least for the RV community.

 

> A few dealers are calling FV in the 5yr roll +7bps this am (bit of a moveable feast) with some thinking there's a chance of a tightening post auction like we saw in the new 10yr. With 2-5-10s at the rich end of its range, however, we may need a bit of a yield/curve concession to get RM involved. We still like selling some of the high cpn neighbours (like 3.75 9/24s and/or BTPS 2.5 11/25s) into this new issue.

 

> BTPS 1.35 4/30s have stabilized on the curve the last couple days, the roll vs 8/29s at 8.1bps. The compression of BTPS 3/30s vs 4/30s has also stalled, now -.6bps. Profit taking in SPGBs emerged yesterday and BTPS sprds tightening to DBRs have stalled (contrary to ITRX cheapening) so, from a broader perspective, it's unclear whether there's pent-up demand for BTPs here other than RV...

 

 

BTPS 11/24-8/29 sprd at/near its flattest into this am’s supply…

 

 

More to come…

 

 

Mark

 

 

 

Mark Funsch

 

O:            +44 (0) 203 - 143 - 4177

M:            +44 (0) 789 - 996 - 4051

E:             Mark.Funsch@AstorRidge.com

W:            www.AstorRidge.com

UK:          14-16 Dowgate Hill, London UK EC4R 2SU

US:          245 Park Ave, 39^th Floor, NY, NY, 10167

 

This research was prepared by Mark Funsch.  He is a consultant with Astor Ridge.  A history of his marketing commentaries 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 recommendations, those 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 clients 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

 

 

• We’re closing in on the end of Q3 of what’s been a fascinating year in the markets – rightly or wrongly! Politics and policy continue to drive the markets, the unpredictability this creates driving volatility that has created opportunities but also impaired liquidity and the economic outlook. As we head into Q4, here are the market’s primary focal points (in no particular order):

 

• TRUMP! “A trade deal with China is closer than you think!” Uh-huh. Impeachment imminent?
• Brexit’s just 35 days away and we still have no idea what the outcome will be.
• Boris Johnson’s been rebuked but soldiers on. Election soon?
• The ECB has kick started QE amid remarkable resistance and, as of this am, resignations. Fiscal stimulus on tap in Europe and UK?
• Economic momentum has plummeted in Europe, the UK’s been softening and the US holding on for dear life as Fed members say “No more rate cuts!”
•  Equities continue to defy gravity – and logic – the S&P 500 lingering just off the all-time highs. Is this sustainable?
• The Euro’s sub-$1.10, Cable’s recent reversal looking ominous. Will Trump force intervention to weaken the USD?
• Corporates/credit issuance has been massive – where is this money going and is this leverage a worry if recession looms?
• Ratings upgrades in Europe driving further spread narrowing in Spain et al…

 

• Charts:
• It’s no mystery that Trump’s positive US-China trade tweets can help his ratings – see below.

 

 

• Cable/Sonia continue to wax and wane with events in Parliament – the recent bounce failing at 50% retracement.

 

• Bull flattening across EGB curves in advance of QE as Mftg PMIs sink…

 

• UST 10yr yields and ISM Mftg New Orders… ‘What? Me Worry?’

 

• Will the consumer save the day? Not so sure – German consumer confidence #s leading the US lower…

 

• ITRX Eur 10yr XOVER index has thundered tighter this year but the post-summer surge in issuance has brought in some spread widening. BTPS remain at their tightest speads, however, amid soft data that has bull flattened EGB curves.

 

• A tale of two curves… Convergence between US and GER 5-30s curves has come from two different angles. What impact does the fiscal outlook have on this relationship?

 

 

More to come!

 

 

Mark

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Funsch

 

O:            +44 (0) 203 - 143 - 4177

M:            +44 (0) 789 - 996 - 4051

E:             Mark.Funsch@AstorRidge.com

W:            www.AstorRidge.com

UK:          14-16 Dowgate Hill, London UK EC4R 2SU

US:          245 Park Ave, 39^th Floor, NY, NY, 10167

 

This research was prepared by Mark Funsch.  He is a consultant with Astor Ridge.  A history of his marketing commentaries 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 recommendations, those 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 clients 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