GLOBAL INVESTMENT STRATEGY, EXECUTION AND RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS

Bottom Line: In the event of a sustained global slowdown, Canadian rates have further to fall than EUR (not least since the Bank of Canada has more bullets left than the ECB), but currently the spread is at the wides. Hence this is a decent cross-market swap trade on its own merits, but puts you long the tail risk of a major correction due to a viral pandemic. Other cross-market spreads have already moved sharply towards their historical GFC extremes of 2008/09, but CAD-EUR 5y5y has yet to see a similar move.

Trade:
Recv CAD 300mm 5y5y swap
Pay EUR 225mm 5y5y swap

Target entry 155bp on the 1:1.28 weight

(Equivalent to USD 100k/bp of CAD 5y5y. DV01 weight 1:1.28)

 

Rolldown of approx. negative 5bp over the first year.

 

Rationale: The evolution of the coronavirus epidemic and its impact on the global economy is close to impossible to forecast. While cases at the epicentre of the outbreak appear at least to be plateau’ing, reported infection numbers further afield seem to be on an upward trajectory, as is the concern in both public and financial life. The fragile state of some developed economies is not a good starting place for a shock to supply or activity. In the rates space, it is common to look at 5y5y rates to assess dislocations between currencies, and the CAD 5y5y rate has been pulsing on cross-market heat maps.

 

 

I’ve run a PCA analysis of 5y5y rates for the last 20 years of data, and the two currencies’ 5y5y rates that stand out are EUR to the low side, and CAD to the high side (see table)

 

Residual vs PCA 1 for G10 5y5y rates:

 

	EUR	GBP	USD	JPY	SEK	NOK	CHF	AUD	NZD	CAD
Residual bp	-61.1	-22.3	53.8	-50.0	-37.1	30.2	5.1	-15.8	24.1	105.2
T-stat	-1.46	-0.89	1.29	-1.28	-1.01	0.94	0.26	-0.32	0.43	2.26

 

So, even prior to the virus newsflow, my model was flagging up a receive CAD / pay EUR trade.

 

Using the PCA 1 weights (with an exponential beta) gives a relative weight of CAD:EUR 1:1.28. This is the past year’s relationship on that basis:

 

The spread has already started to move (though the volatility in the market makes exact levels unclear), but is still very much at the high end of the past year’s range. So this is not an unreasonable local RV trade, but the history during the global financial crisis suggests that if the coronavirus outbreak becomes pandemic and we re-approach the conditions of the global financial crisis of 08/09 this spread could collapse. Canada is an oil producer, Europe is a consumer so the effect of lower oil prices (on reduced Chinese/global demand) will have the opposite impact in each economy. In addition, Canada has room below to deliver accommodation in a way that Europe does not, having used up most if not all of its monetary ammunition.

 

Would love to have your feedback,

Best wishes,

 

David

 

 

David Sansom

 

 

 

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This marketing was prepared by David Sansom, 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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MARKET UPDATE : I WOULD STILL BE INCLINED TO TAKE PROFITS ON TODAYS OPENINGS GIVEN THE RSI DISCLOCATIONS REMAIN WRONG! (JUST DAILY CHARTS).

 

THE ROLL CAN SOMETIMES BE A CATALYST FOR CHANGE.

 

 

 

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MARKET UPDATE : WE MIGHT NEED A BREATHER AS SO MANY STOCK AND BOND DAILY CHARTS HAVE RSI DISCLOCATIONS THAT ARE WRONG! TAKE SOME POSITIONING OFF TODAY IF LONG BONDS AND SHORT STOCKS.

BOND YIELDS MIGHT HAVE GOTTEN TOO CARRIED AWAY GIVEN THE EXTENDED DAILY RSI’S.

STOCKS TOO ARE IN THE SAME CAMP OF OVER EXTENDED DAILY RSI’S.

1. STOCKS WILL GO LOWER BUT DO NEED A BREATHER ESPECIALLY GIVEN TODAYS CAPITULATION.

2.   BONDS : THERE ARE MANY KEY CHARTS TO BACK UP THE REPLICATION OF THE 2011-2012 YIELD SCENARIO ESPECIALLY IN THE US, BUT WE NEED A PAUSE BEFORE THE NEXT MOVE LOWER.

US BREAKEVENS AND USGGT :

BREAKEVENS HEADING LOWER.

COMMODITIES : GOLD AND SILVER SHOULD MOVE A LOT HIGHER.

EQUITIES : STOCKS NOW LOOK VERY VULNERABLE, THE WORST IS YET TO COME.

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

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• •             This marketing was prepared by Christopher Williams, 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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• •             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. 
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EQUITIES : TIME TO GIVE THE DIP BUYERS A CHANCE. NOW WE KNOW SOME MAJOR TOPS ARE IN TODAY FEELS LIKE A BOUNCE DAY.

MANY DAILY RSI’S ARE OVERSOLD WHILST THE LONGTERM CHARTS POINT TO MARKETS MUCH LOWER.

EUROSTOX AND DOW HAVE HELD IMPORTANT LEVELS SO LETS SEE.

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
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• •             I provide our research notification below for your convenience:
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• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
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• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, 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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• •             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. 
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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
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• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
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• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
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• •             Chris

 

 

 

 

EQUITIES : IT HAVE MENTIONED NUMEROUS TIMES THAT MANY WEEKLY US STOCKS HAVE BEEN OVER BOUGHT, NOW WE ARE SEEING THOSE STOCKS FORM MAJOR AND SIGNIFICANT TOP. 

THIS WONT BE A SHORT-TERM THING.

SOME PRIME EXAMPLES BELOW :

1. TESLA IS A GOOD EXAMPLE GIVEN ITS “ONE OFF” VOLUME IN EARLY FEBRUARY PLUS SIGNIFICANT OVER BOUGHT RSI ACROSS ALL DURATIONS.
2. 
3. APPLE A SOLID STOCK NOW LOOKS EXTREMLY OVERBOUGHT THUS COULD BE TIME IT TOPS IS IN. I THINK IT WILL BE HIT BY THE CHINA SHUT DOWN ALONG WITH OTHERS.
4. 

THIS ARTICLE FROM 2018 TALKS OF HIGH RELIANCE OF CHINESE SUPPLIERS. THIS SUPPLY-DEFAULT IS GOING TO HURT ALL.

https://asia.nikkei.com/Asia300/Apples-Chinese-suppliers-grows-to-the-highest-level-numbers-quadrupled-from-2012

www.ccn.com/why-tesla-stock-should-panic-about-chinas-auto-sales-implosion/

blinks.bloomberg.com/news/stories/Q63L6LMB2SJQ

SOME MONTH END CLOSES MIGHT PRESENT MAJOR PROBLEMS.

EUROSTOX AND FTSE DAILY CHARTS ARE THE FIRST TO TEST ITS 200 DAY MOVING AVERAGE.

FTSE IS NOW OFFICIALLY FAILING.

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
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• •             I provide our research notification below for your convenience:
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• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, 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
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

 

 

MARKET UPDATE : EQUITIES HAVE A BIG PROBLEM AND ONGOING ONE AT THAT. WE ARE ON THE MOVE AND THIS IS JUST THE START IF US STOCKS HAVE TOPPED, SO MANY REMAIN HISTORICALLY OVER BOUGHT. THE GLOBAL SLOW DOWN IS LOOMING AND CREDIT WILL BE IN SHORT SUPPLY.

BOND YIELDS HAVE HAD A REPRIEVE BUT SHOULD CONTINUE TO REPLICATE 2011-2012 HISTORICAL MOVE.

STOCKS ARE FINALLY ON THE MOVE AND THE EFFECTS OF THE CHINA SLOW DOWN WILL BE FELT SOON. NOTHING IS LEAVING CHINA INCLUSIVE OF MUCH NEEDED COMPNENT. BOND YIELDS WILL FALL FAST AND A LOT FURTHER.

STOCKS : LOWER WITH THE HANG SENG CLOSE TO A VERY KEY MULTI YEAR RETRACEMENT. THE CORONAVIRUS DOES NOT SEEM TO BE ABAITING.

   BONDS : THERE ARE MANY KEY CHARTS TO BACK UP THE REPLICATION OF THE 2011-2012 YIELD SCENARIO ESPECIALLY IN THE US, WHILST GERMANY BREACHED BACK INTO THE LONGTERM DOWNTREND YIELD CHANNEL. ADDITIONALLY THE DBR 46’S HAVE BREACHED THEIR SIGNIFICANT MOVING AVERAGE

US BREAKEVENS AND USGGT :

BREAKEVENS HEADING LOWER.

COMMODITIES : GOLD AND SILVER SHOULD MOVE A LOT HIGHER.

EQUITIES : STOCKS NOW LOOK VERY VULNERABLE, THE WORST IS YET TO COME.

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, 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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• •             Chris

 

 

 

Bottom Line: Commentators see the UK government smashing the chains off the austerity coffers as they attempt to fulfil their generous election spending plans. This shift to Keynesian infrastructure, research and other stimulative spending should push the MPC off centre-stage and into the wings. Our view is that increased Gilt supply will drive yields higher in the belly (5y to 10y) than at the short or long ends, and that this could send the 5-30 curve back towards the inverted pre-crisis levels. At the same time, an equivocal MPC will find it hard to cut rates. I’ve proposed two trades to set 5-30 flatteners, funded by selling the risk of a sharp repricing of the short end to lower rates. Both versions have positive roll-down, which is helpful if the UK situation remains muddled between domestic and global pressures.

 

Trade:
Buy GBP 1bn Floor on CMS 30-5 ATMF (k=0.16%)

Sell GBP 500mm 1y2y Receiver k=0.50% (around 18bp OTM)
for 3bp running

or
Buy GBP 1bn Floor on CMS 30-5 ATMF (k=0.16%)

Sell GBP 750mm 1y2y Receiver k=0.50% (around 18bp OTM)
for 0.5bp premium take out

 

Spot 2y at 0.71%
Spot 5y-30y at 0.12%

 

Rationale: With the change of government, and Chancellor, the so-called “Fiscal Rules” in the UK look vulnerable. The bounteous spending promises, if carried through, will likely increase Gilt supply, and historically this has impacted the belly of the curve (eg 5y-10y) more than the short or long ends. At the same time, and for the first time since its inception, the MPC will be heading for the backseat as fiscal expansion takes the wheel. So this gives two themes: flattening in 5-30 and selling volatility on short rates.

 

The chart shows the 5y-30y curve (in orange) and 2y spot swaps in white. The curve is sitting is firmly at the bottom of the range since the global financial crisis, but has been much flatter (indeed strongly inverted) in the sunnier times before that.

 

The combination of sharply reduced MPC rates and the onset of the QE programme drove a sharp steepening in the Gilt 5-30 curve in 2008/2009, as the 5y point led the way lower. It is not unreasonable to suggest that in the reverse move, where supply pushes the belly higher and the MPC moves eventually to wind down QE (it has said that the APF reinvestment would be reviewed when rates hit 1.25%, so 50bp from now) that 5y-30y would move back into the pre-GFC range.

 

 

The risk to the trade is clearly that the MPC turns dovish and/or the government does not follow through with its spending plans. The trade loses money if the 2y rate expires below 0.50% (as it seems likely that the 5-30 curve will be steeper).

Looking at the implied curve volatility, GBP 5-30 curve vol is close to its lows of the past 3y, as the realized correlation between 5y and 30y rates is above 90% (chart). Historically, correlations have been significant weaker, and the scenario in which this trade works is precisely one where correlations should break lower.

 

Carry roll-down.
1bn x 500mm version: Given the convexity adjustment for the CMS floor, the trade has positive roll-down of 2.3bp over the first 6 months.

                               NPV                       P&L

Inception             3.3bp                     0
After 3m              4.5bp                     1.2bp
After 6m              5.6bp                     2.3bp
After 9m              6.1bp                     2.8bp

1bn x 750mm version: This has better rolldown characteristics as the 2y has a higher weight, and so the value of the roll further out of the money is higher

                                NPV                       P&L

Inception             -0.4bp                   0
After 3m              1.8bp                     2.2bp
After 6m              4.0bp                     4.4bp
After 9m              5.6bp                     6bp

This trade is a macro call on the shift from monetarist to Keynesian polices, and the possible move by the UK towards “New Deal” infrastructure and other spending. The “BoE sitting on its hands” view is relatively consensus given the opposing forces on the UK economy, but the flattening is predicated on increased supply and higher yields.

 

Would love to hear your thoughts!

Best wishes

David

 

 

David Sansom

 

 

 

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

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

Office:   +44 (0) 203 143 4180

Mobile:  +44 (0) 7976 204490

Email:     david.sansom@astorridge.com

Web:       www.AstorRidge.com

 

This marketing was prepared by David Sansom, 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 Registered in England and Wales with Companies House:  Registration Number OC401796

 

Business Briefing

1) Stocks Drop With Treasury Yields on Virus Jitters: Markets Wrap

2) Dollar Has No Equal for Investors Sheltering From Outbreak (1)

3) China Rotation Time for Bonds to Run Past Stocks: Markets Live

4) Global Shipping’s ‘Perfect Storm’ to Pass, Veteran CEO Says (1)

5) Virus Epidemic Enters New Phase as Cases Outside China Multiply

World News Briefing

6) Korean Infections Jump; Hubei Revises Up New Cases: Virus Update

7) Trump Ads Will Take Over YouTube’s Homepage on Election Day

8) Merkel’s Succession Has Descended Into Chaos and She Knows It

9) Russia Backs Trump in 2020, and He Rages Over Alert to Congress

10) Overwhelmed Chinese Hospitals Turn Away Patients Without Virus

Bonds

11) Bond Traders Double Down on Fed Cut Bets in Rate Markets Rally

12) Treasury 10-Year Drops Below 1.50%, Aussie Slips on Virus Spread

13) HNA Bond Euphoria Cools as Market Weighs State Takeover Talk

14) Aussie Drops, Yen Gains With Widening Virus Spread: Inside G-10

15) Investors Come Back for More After 34% Bond Returns in Russia

16) Won Leads Drop in EM FX Amid Virus Case Surge: Inside Asia

Central Banks

17) Buffett, JPMorgan, HKEX, Bank of Korea: Week Ahead in Functions

18) Australia Banks to Face Climate Stress Tests, Regulator Says (1)

19) EUROPE PREVIEW: PMIs to Lay Economic Weakness Bare in 1Q (1)

20) JAPAN REACT: Hotel Stays, Durable Goods, and Virus Impact on CPI

21) Japan Price Gains Buoyed by Energy Offer BOJ Little Comfort (2)

Economic News

22) Asia’s Economies Flash Early Signs of Virus Hit as G20 Meets

23) The World’s Biggest Economies Get a Jolt of Government Spending

24) Big Economic Reads: Beijing Steps Up Response to Virus Outbreak

25) G-20 Chiefs to Meet as China, Japan, Europe Stall: Economics

26) SNB Isn’t Panicking About the Franc And Here’s One Reason Why

European Central Bank

27) ECB REACT: Policymakers' Optimism Yet to Find `Firmer Grounds'

28) ECB Warned of Caution on Economy Even Before Coronavirus Hit (1)

29) ECB PREVIEW: Minutes May Reveal Policy Makers Views on Review

30) ECB tone upbeat on eurozone growth before coronavirus struck
Preview text not available for this story.

31) Christine Lagarde Has a Troubling Ambition: Ferdinando Giugliano

First Word FX News Foreign Exchange

32) Japan Lawmaker Says Digital Yen Isn’t Coming Anytime Soon

 

image003.jpg@01D58404.6834BD00">

 

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 FRTR 0.75% 3/25 vs Selling FRTR 0.75 11/28(CTD OATH0) 100k Risk
             Sell DBR 0.5% 2/25(OEM0) vs Buying DBR 0.25% 2/29(RXH0 or M0) 75K Risk

Entry: -10.5bps, add -9.0, Target -16bps
Carry and Roll – Net 0.5bps Positive – 3mos

 

Rational:

• Level of German rates has been a strong driver for compression of spreads – Not looking for us to revisit of the August 2019 low in yields
• 10yrs currently expensive on the French Curve (5/10/30y) – Bottom Chart
• Next up supply point will be 10y and longer – France will shift to sharply negative NET Funding in March(approx. 14bl)
• Both 5y and 10y Spreads vs core at  muli-qtr lows( and only several bps from multi-year lows) – looking for either stabilization of spreads with 10yrs cheapening(supply trade or directional trade)

or risk-off trade where 10yrs widening faster than 5yrs while investors attempt to shorten credit term risk premium profile while maintaining exposure to France.

• 75% Hedge with OE/RX produces less volatility – mitigates to some degree further downside should yields come lower & spreads tighten further.
• Relative ease of executing the trade given ¾ of the trade is done through futures
• Carry + Roll  is marginally positive assuming 13bps differential in funding
• RV – taking advantage of Cheap 5yrs in France, and marginally expensive current French CTD falling out of the basket in a couple of weeks time

	Butterfly Analysis		YIELD			Curve	Issue		EURIBOR	Frwd		Curve	Issue			Eonia					25-May	Rich Cheap	R-C	LIBOR		EONIA
			Spot	Frwrd	Carry	Roll	Roll	NET	OAS	AsSwp	Carry	Roll	Roll	NET	Y-Y	OAS	F OAS	Carry		Y-Y	REPO	Analysis	NET	OAS	Yld	OAS	DUR
-1	FRTR 0.75 11/28	Sell	-0.296	-.29	0.5	1.6	0.0	2.1	12.6	12.6	-0.2	0.5	-0.2	0.1	13.0	-3.1	-3.2	0.1		-2.3	-0.455	FRTR 0.75 11/28	0.7	0.6	0.1	0.6	2.7
1	FRTR 0 3/25	Buy	-0.509	-.51	-0.2	1.4	0.5	1.6	18.8	19.1	-0.3	0.6	0.5	0.7	18.8	3.5	3.6	-0.1		4.2	-0.455	FRTR 0 3/25	(1.3)	(1.4)	(1.3)	(1.6)	(0.6)
0.75	DBR - 0.25 2/29	Buy	-0.508	-.506	0.2	1.1	0.1	1.4	34.7	35.0	-0.2	0.0	0.0	-0.2	35.4	19.0	19.1	-0.2		20.0	-0.585	DBR - 0.25 2/29	0.3	0.3	(0.0)	0.3	1.2
-0.75	DBR - 0.5 2/25	Sell	-0.653	-.656	-0.3	0.5	0.0	0.2	32.6	33.1	-0.2	-0.3	0.0	-0.4	33.1	17.3	17.6	-0.2		18.4	-0.585	DBR - 0.5 2/25	0.1	0.1	0.2	0.1	(0.3)
	Spot Fly =		-10.3	-10.6	-0.3	0.2	0.5	0.5	-7.8	-8.0	-0.1	0.3	0.6	0.8	-7.6	-7.8	-8.0	-0.2		-7.7			1.9	1.8	1.7	2.0	2.1

 

Chart Below:(Inverted for ease of graph– Long Term 5/10 Box France vs Germany (Purple Line) – Since 2019 – Lower Rates(10y Bunds – Green Line)

means tighter spread and flatter Credit Term Premium . Bottom Panel – both 5y and 10y French Spreads vs Germany

                

 

Chart Below: 5/10/30 Fly 50/50 wtd – Using Generic Rates – CMT Spline curves.

 

 

 

 

 

Stephen Creaturo

 

O:            +44 (0) 203 - 143 – 4175

M:            +44 (0) 7 809 575 890

E:             stephen.creaturo@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 marketing was prepared by Stephen Creaturo, 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

 

MARKET UPDATE : CONSOLIDATION OVER TIME NOW FOR BOND YIELDS TO FALL, STOCKS CONTINUE TO DEFY ALL LOGIC.

BOND YIELDS HAVE HAD A REPRIEVE BUT SHOULD CONTINUE TO REPLICATE 2011-2012 HISTORICAL MOVE.

STOCKS REMAIN VERY OVER BOUGHT AND MANY NOW LOOK LIKE PUTTING IN LONGTERM TOPS, BUT THAT SAID NEED TO FAIL THIS WEEK!

1. WE NEED SOME NEW BOND YIELD LOWS SOON. YIELDS CONTINUE TO GRIND LOWER WITH GERMANY AND US 5YR FOCUS CHARTS, TIME TO REPLICATE THE 2011-2012 SCENARIO.

2. STOCKS LOWER INTO THE WEEKEND, IDEALLY THEY HEAD LOWER FROM TODAY AS MANY HAVE ONLY JUST REVISITED THEIR RECENT HIGHS. THE CORONAVIRUS DOES NOT SEEM TO BE ABAITING.

BONDS :

THERE ARE MANY KEY CHARTS TO BACK UP THE REPLICATION OF THE 2011-2012 YIELD SCENARIO ESPECIALLY IN THE US, WHILST GERMANY BREACHED BACK INTO THE LONGTERM DOWNTREND YIELD CHANNEL. ADDITIONALLY THE DBR 46’S HAVE BREACHED THEIR SIGNIFICANT MOVING AVERAGE.

US BREAKEVENS AND USGGT :

BREAKEVENS COULD BE POISED TO TOP OUT.

COMMODITIES : VERY LITTLE GROUND HAS BEEN GIVEN BACK ON LAST YEARS RALLY WITH GOLD REMAINING IN VERY POSITIVE TERRITORY.

EQUITIES : STOCKS NOW LOOK VERY VULNERABLE, THE WORST IS YET TO COME.

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
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• •             This marketing was prepared by Christopher Williams, 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
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
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• •             Chris