巴黎银行-全球-投资策略-聚焦iTraxx和CDX指数-20190704-8页 (2).pdf

Credit Trading Desk Analyst Commentary www.GlobalM Please refer to important information at the end of the commentary and MAR disclosure.Eyes on iTraxx&CDX indices What has happened?While the Central banks had already pushed the markets into a strong bullish mode,the agreement between President Trump and President Xi to restart US-China trade talks triggered the capitulation of a few investors who had remained on the defensive side.At the same time,the macroeconomic data remains poor across the board;key numbers were i)China Manufacturing PMI for June at 49.4(the positive is that it is flat compared to May despite covering the last increase of tariffs);ii)Markit eurozone Manufacturing PMI for June at 47.6 which is consistent with real GDP growth of 0.2%and does not suggest an improvement in Q3;and iii)US ISM manufacturing New Orders dropped to 50,its lowest print since December 2012.In Europe,iTraxx Main continued to outperform European Equities and Investment Grade Cash which has been flooded by a record amount of new issues(70bn at the QW5A level).iTraxx Main nonetheless,underperformed BTPS which have been the first to benefit from an expected announcement of a new QE programme in September or December.iTraxx Main 5y is now around its most expensive valuation in our two-factor model vs.SX5E and EGBs spreads.In the US,$Investment Grade Cash has strongly performed(-8bp w-o-w),outperforming CDX IG by c.3bp.In contrast with Europe,both Equity/Credit relationships(CDX IG/SPX and CDX HY/SPX)are unchanged w-o-w.This suggests some outperformance of the Credit indices when the$3/bbl drop in WTI is taken into account.Whats next?We expect markets to keep a constructive tone in the weeks to come.For the Synthetic market,we see very limited upside at current levels in both iTraxx Main and CDX IG 5y and see more value in Cash given valuations and as supply should decline as corporates enter their blackout period.European Trades.With iTraxx Main 5y below 50 and Investment Grade Cash curves at their record flat level since March 2015,the conditions are aligned for a significant bull-flattening of iTraxx Main 5/10y.We recommend to investors iTraxx 3/10y flattener which is the optimal implementation of the flattener.We recommend maintaining our Long QW5A TRS September 2019 vs.iTraxx Main 5y trade idea,our highest conviction trade.US Trades.We continue to recommend to investors to maintain our Long IBOXIG TRS September 2019 vs.iTraxx Main 5y.Index levels Relative Value update in Europe The market continues to squeeze and is likely to keep thesame bullish tone until the end of the month when both the ECB and the Fed will give further guidance to the market(ECB on 25 July and the Fed on 31 July).The decline in supply after the two extremely busy months of May and June(blackout periods will now help)should allow IG Cash to outperform CDS across the board.We recommend to maintain the Long basis positions at the macro level,namely Long QW5A TRS September 2019 vs.iTraxx Main S31 5y as well as Long IBOXIG TRS September 2019 vs.iTraxx Main S31 5y.Chart 1:iTraxx Main 3/10y vs.iTraxx Main 5y Source:BNP Paribas While we see very limited upside at current levels in theoutright Long position iTraxx Main 5y,we like iTraxx Main 5/7y,5/10y and 3/10y flatteners.The entire Main curve 3/5/7/10y has started to compress driven by the collapse of the 5y but we think that the 5y has reached the inflection point where the constructive tone could push the entire Main curve significantly flatter from its current levels.Chart 2:the announcement of the first CSPP did not trigger any flattening of iTraxx Main 5/10y Source:BNP Paribas Interestingly,the launch of the first CSPP cannot beused as a template to forecast the behaviour of iTraxx Main 5/10y.Indeed,the 5y did not reach a sufficiently tight level to force the bull-flattening of the 5/10y.Chart 2 shows 5Y Level(bp,D1W)48.8(-4.8)58.6(-7.1)121.3(-14.6)236.6(-19.8)51.9(-4.0)315.4(-12.0)Skew(bp,D1W)-2.8(+0.6)-0.3(-0.4)5.6(-1.2)-26.6(-3.5)-4.3(-0.9)-30.3(-0.3)3/5Y(bp,D1W)25.6(-1.4)-50.0(-7.5)26.3(-1.1)95.0(+0.0)5/10Y(bp,D1W)45.1(-0.6)32.5(-0.0)50.0(+0.0)52.5(+0.0)47.5(-0.5)40.0(+0.0)Daily 3M imp.brkvn(bp,D1W)1.4(-0.2)1.9(-0.3)-4.9(-0.8)1.3(-0.3)5.7(-0.9)Daily 1M real.vol.(bp,D1W)1.1(-0.3)1.6(-0.4)-5.1(-1.1)1.3(-0.4)6.0(-2.0)Data as of 4-Jul-19 16:35 for indices;last close for volatility.Source:BNP Paribas,BloombergiTraxx XoveriTraxx SeniTraxx MainiTraxx SubCDX IGCDX HYIGHYMSTSENXOSUB04 July 2019 Credit Trading Desk Analyst Commentary 4 July 2019 2 Credit Trading Desk Analyst Commentary www.GlobalM that the 5/10y oscillated in a 1bp range between i)the CSPP announcement date,10 March 2016,and ii)when the ECB commenced buying,8 June 2016(dates highlighted in red).In contrast,it should be noted that the announcement of the first CSPP triggered an important bull-flattening of IG Cash Credit curves.Chart 3 shows 7bp of flattening between the announcement and the start of the CSPP programme and a total of 15bp of bull-flattening up to mid-July 2016.Chart 3:but triggered a significant bull-flattening of IG Cash Credit curves Source:BNP Paribas,IHS Markit With iTraxx Main 5y now below 50,we expect the longer part of the iTraxx Main curve to flatten,although not necessarily with a tightening of the 5y.We look below at the two occasions when iTraxx Main 5y came into the 40-50 range:March 2015 and January 2018.i.March 2015(start of the ECB PSPP).The rally of the 5y triggered a significant bull-flattening of the 5/10y.At that time,a level of 50 for Main 5y was implying c.32 for the 5/10y.Note that the market turned bearish in April due to the situation in Greece;this triggered a bear-steepening of the 5/10y in May/June 2015.Chart 4:bull-flattening of iTraxx Main 5/10y from October 2014 to March 2015 Source:BNP Paribas ii.January 2018(peak of the ECB CSPP).As shown on Chart 5,the 5/10y waited for the 5y to break 55 before being entrenched into a sustained bull-flattening trend.At that time,a level of 50 for Main 5y was implying c.37 for the 5/10y.Chart 5:bull-flattening of iTraxx Main 5/10y from September 2017 to January 2018 Source:BNP Paribas Note the significant divergence between Cash and Synthetic curves.Since Mario Draghis speech in Sintra(18 June),IG Non-Financials Cash curves have flattened by c.6bp,prolonging the flattening trend initiated in Q4 last year(Chart 6).The differential between iBoxx IG Non-Financials 3-5y and 7-10y indices has now collapsed to 12bp which is the record low since March 2015 when iTraxx Main 5y entered into the 40-50 range.Chart 6:strong bull-flattening of IG curves Source:BNP Paribas.IHS Markit Which are the ideal tenors to implement a bull-flattening of iTraxx Main curve?We show in Table 1 the expected performance of outright Long positions on each tenor assuming no change in the shape of the curve for the calculation of the roll-down.It shows that the 3/10y flattener is superior to the 5/10y in the sense that its carry plus roll-down is positive in contrast with the 5/10y.It is also more directional than the 5/10y due to the strong directionality of the 3/5y.Table 1:6-month carry and(expected)roll-down per tenor(in breakeven bp)3y 5y 7y 10y 6bp 10bp 10bp 8bp Source:BNP Paribas We therefore recommend to investors the following trade:Buy 100mn iTraxx Main S31 3y 23 Sell 32mn iTraxx Main S31 10y 93.25 Target profit:c.+215k(7bp flattening).Target.On previous occasions when iTraxx Main 5y broke through 50,the 3/10y dropped respectively to 52(March 2015)and to 62(January 2018,Chart 7).We conservatively target a flattening to 63 from 70 currently.Credit Trading Desk Analyst Commentary 4 July 2019 3 Credit Trading Desk Analyst Commentary www.GlobalM Chart 7:the last time iTraxx Main 5y broke through 50,iTraxx Main 3/10y bull-flattened to 62 Source:BNP Paribas Trade economics.The extreme steepness of Main 3/10y vs.the 5y allows the DV01-flattener to be i)marginally carry positive and ii)roll-down flat.This has not occurred in the last ten years.This is shown on Chart 8 which displays the history of the carry and(expected)roll-down per month for a DV01-flattener 3/10y built with a notional amount of 100mn 3y.Finally,the fact that the 3/10y is roll-down flat allows investors to maintain the trade throughout the summer(in contrast with the 5/10y which performs badly before the Roll).Chart 8:iTraxx Main 3/10y flattener over the past 10 years carry and(expected)roll-down per month(100mn 3y)Source:BNP Paribas 4 July 2019 4 Credit Trading Desk Analyst Commentary www.GlobalM iTraxx Main vs.iTraxx Xover iTraxx Main vs.iTraxx Fin Sen iTraxx Main vs.SX5E iTraxx Main vs.CDX IG Skews iTraxx Main,Fin Sen and CDX IG Skews iTraxx Xover and CDX HY Implied and Realised Volatilities for iTraxx Main Implied Volatility vs.Index for iTraxx Main Sources for all charts on this page:BNP Paribas,Bloomberg 5070901107/188/189/18 10/18 11/18 12/181/192/19 3/194/195/196/197/19iTraxx Xover S31-3 x iTraxx Main S31iTraxx Xover S30-3 x iTraxx Main S30iTraxx Xover S29-3 x iTraxx Main S2901020307/188/189/18 10/18 11/18 12/18 1/192/19 3/194/195/196/197/19iTraxx Sen Fin S31-iTraxx Main S31iTraxx Sen Fin S30-iTraxx Main S30iTraxx Sen Fin S29-iTraxx Main S29205255305355405405060708090100On-The-Run-2On-The-Run-1On-The-RunLastiTraxx XoveriTraxx Main30507090110130405060708090100On-The-Run-2On-The-Run-1On-The-RunLastiTraxx MainiTraxx Fin Sen1801902002102207/188/189/18 10/18 11/18 12/18 1/192/19 3/194/195/196/197/19iTraxx Main continuous+0.040 SX5E-10-50510157/188/189/18 10/18 11/18 12/18 1/192/19 3/194/195/196/197/19iTraxx Main S31-CDX IG S32iTraxx Main S30-CDX IG S314050607080901002,9003,0253,1503,2753,4003,5253,650past 12 monthspast 6 monthsiTraxx MainSX5E405060708090100405060708090100On-The-Run-2On-The-Run-1On-The-RunLastCDX IGiTraxx Main-10-505107/188/189/18 10/18 11/18 12/181/192/19 3/194/195/196/197/19iTraxx MainiTraxx SenCDX IG-40-200207/188/189/18 10/18 11/18 12/181/192/19 3/194/195/196/197/19iTraxx XoverCDX HY-10%-5%0%5%10%15%20%25%30%35%10%20%30%40%50%60%70%Jul-18Sep-18Nov-18Jan-19Mar-19May-19Jul-19Implied-Realised(R.H.S.)3M Impl.Vol.1M Realised Vol.25%35%45%55%65%75%30 40 50 60 70 80 90 1003M Impl.Vol.iTraxx Main(bp)1Y6M1MCurrentSmile 4 July 2019 4 Credit Trading Desk Analyst Commentary www.GlobalM This document has been produced by:Pierre-Yves Bretonniere,Head of Relative Value Credit Trading Desk Analysts BNP Paribas London Branch Indices/X-Asset,European Credits+44 207 595 8973 pierre- Kevin Bonkoski,Relative Value Trading Desk Analyst BNP Paribas London Branch Cross-currency,GBP RV+44 207 595 8167 MAR Link Legal Notice This document constitutes a marketing communication and has been prepared by Credit Trading Desk Analysts who work closely with the Sales and Trading function within the BNP Paribas group of companies(collectively“BNPP”)for,and is directed 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