Brazil IR/DI Strategy:Paying into flattening
摘要： Thisisacomplementaryrecommendationaimingattransformingthecurrentpayingpositioninthefrontendintoaflat
This is a complementary recommendation aiming at transforming the currentpaying position in the front end into a flattening strategy (link: Brazil IR/DI: pay tosee it now… adding to Jan-17)
The recommendation to pay DI Jan-17 was driven by two factors: (a) our factorand structural models of fair value, and (b) the dichotomy between what is impliedinto the DI curve and the official call of Selic from our economists.
We believe that there is scope for the curve to flatten out. Our economists thinkthe new administration on under Temer has a golden opportunity to engineer aturnaround in the Brazilian economy (link: Brazil: And now for somethingcompletely different). We believe that the Brazil’s risk premium should decreaseconcomitantly.
Receive DI Jan-19 (onshore) at 12.56% equivalent to a spread between DI Jan-19and Jan-17 of -111bp; allocation USD 15k DV01; initial target: -150bp. Stop loss: -80bp. Carry of the spread is positive 1.5bp/month.
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