CEE Capital Markets & Fixed Income Trading Ideas. September, 2014 Zachary Carvell, Head of Institutional Solutions & Product Management

Transcription

1 & Fixed Income Trading Ideas September, 2014 Zachary Carvell, Head of Institutional Solutions & Product Management

2 Some people are scared of spiders August 14 2

3 ..some people are scared of mice.. August 14 3

4 ..& others are scared of things that go bump in the night August 14 4

5 ..& others well, they`re just scared August 14 5

6 Some of us combat our fear by living in denial August 14 6

7 but some of us are so short-sighted August 14 7

8 that we miss the obvious. August 14 8

9 Some would say.. August 14 9

10 Some of us are simply fearless... August 14 10

11 ...& others are just plain stupid! August 14 11

12 What scared you most this year? August 14 12

13 Boo! August 14 13

14 Is it really so bad? August 14 14

15 What should we be looking out for? August 14 15

16 Some things are essential for success August 14 16

17 Complacency is not one of them August 14 17

18 Because We`ve Seen This (the carry trade). Spread US 10Y SPG 10Y , ,5 100 YtM in % 3 2, Spread in BPs 1, , Source: Bloomberg August 14 18

19 . quickly become this (the safe haven trade)! Spread US 10Y SPG 10Y YtM in % Spread in BPs Source: Bloomberg August 14 19

20 Do You Remember This? Source: Bloomberg August 14 20

21 The Taper Tantrum! August 14 21

22 It Was More Than That for Turkey Source: Bloomberg August 14 22

23 And This Time It Looked Even More Serious for Romania Source: Bloomberg August 14 23

24 Until It Didn`t Anymore Source: Bloomberg August 14 24

25 Client Behaviour End of July w/w Volume Change client sells client buys total credit -19% 72% 18% govie 70% 3% 30% total 20% 28% 24% Volume Change client sells client buys total BBG 7% 30% 20% OTC 26% 25% 25% total 20% 27% 24% Change in Ticket Size client sells client buys total credit 34% 51% 54% govie 68% 25% 43% total 69% 30% 53% Change in # client sells client buys total credit -39% 14% -23% govie 1% -18% -9% total -29% -2% -19% Change in Ticket Size client sells client buys total BBG 74% 30% 59% OTC 11% 35% 21% total 69% 29% 52% Change in # client sells client buys total BBG -39% 1% -25% OTC 13% -7% 3% total -29% -2% -19% Clients bought credit (risk), sold govies (safe). Overall volumes & the average ticket size increased (confidence). The number of sell inquiries fell 29% overall driven by a 39% drop in credit sell inquiries. The number of buy inquiries fell 18% in govies. Volumes grew most on the automatic trading platform where clients were buying (best execution) Ticket size grew most on the automatic trading platform where clients were selling The number of inquiries on BBG fell 25%. August 14 25

26 Client Behaviour Beginning of August w/w Volume Change client sells client buys total credit 10% -39% -18% govie 57% -6% 28% total 40% -22% 8% Volume Change client sells client buys total BBG 21% -43% -17% OTC 48% -10% 20% total 40% -22% 8% Change in Ticket Size client sells client buys total credit 12% -35% -16% govie 2% 12% 6% total 17% -14% 1% Change in # client sells client buys total credit -1% -5% -3% govie 55% -16% 21% total 19% -10% 6% Change in Ticket Size client sells client buys total BBG 9% -32% -15% OTC 6% -17% -5% total 18% -14% 2% Change in # client sells client buys total BBG 11% -16% -2% OTC 40% 9% 27% total 19% -10% 6% Client bids for credit dropped 39% (stop buying). Client volumes looking to sell govies rose 57% (sell what you can). The average ticket size from clients looking to buy credit fell 35%. The number of buy inquiries fell 10% overall and rose by 55% in govies where clients were looking to sell. The number of buy inquiries fell 18% in govies. Volumes fell on the automatic trading platform where volumes related to clients who were buying collapsed by 43%. OTC volumes rose with a 48% jump in volumes related to clients looking to sell govies (any execution) Ticket size fell on the automatic trading platform where clients were buying by 32% and in OTC by 17%. Ticket size for sellers increased on both platforms (loss of confidence). The number of inquiries in OTC from clients looking to sell govies rose 40%. August 14 26

27 They Didn t See it Coming? August 14 27

28 Some You Win, Some You Lose But Mostly You Don`t Source: Bloomberg August 14 28

29 Sovereign Underperformers 1st Week of August Long Duration Lower Rated Source: Bloomberg August 14 29

30 Sovereign Outperformers 1st Week of August Long Duration Higher Rated Source: Bloomberg August 14 30

31 That s the Safe Haven Trade NOT the Taper Tantrum Source: Bloomberg August 14 31

32 But NOT Always (in 5 months out of 8 it s the carry trade) Source: Bloomberg August 14 32

33 And YtD Within Markets Too (Curve Carry Trade) Short Duration All Ratings Long Duration All Ratings Source: Bloomberg August 14 33

34 Czech Republic Source: Bloomberg August 14 34

35 Hungary Source: Bloomberg August 14 35

36 Romania Source: Bloomberg August 14 36

37 Poland Source: Bloomberg August 14 37

38 Irrespective of Currency Source: Bloomberg August 14 38

39 16 of worst performers were short duration YtD Short Duration All Ratings Source: Bloomberg August 14 39

40 19 of best performers were long duration Long Duration All Ratings Source: Bloomberg August 14 40

41 So Long Duration And Higher Rating in LCY? Higher Rating Higher Return Lower Volatility Source: Bloomberg August 14 41

42 Or Long Duration And Lower Rating in FX? Lower Rating Higher Return Higher Volatility Source: Bloomberg August 14 42

43 It Depends Where You Come From Higher Rating Lower Return Lower Volatility Source: Bloomberg August 14 43

44 What Would You Choose? CZGB /29/21 ROMGB ROMGB in CZK CZGB in RON Return (Price) 7,0% 5,2% 8,4% 3,9% Volatility 2,3% 2,9% 4,1% 1,3% Sharp Ratio 3,03 1,77 2,06 3,08 Source: Bloomberg August 14 44

45 Don t Worry. Whatever You Chose, It Was Wrong Longest Duration Highest Rating RAGB /26/62 CZECH 3⅞ 05/24/2022 Return (Price) 30,8% 7,0% Volatility 9,24 2,26 Sharp Ratio 3,330 3,109 Source: Bloomberg August 14 45

46 August 14 46

47 THIS was supposed to be the year when normal service resumed in the global economy and markets. As the recovery picked up steam, shares were expected to continue their rally and government bonds were projected to lose value [..], according to the consensus view. But that is not what has happened. As of August 11th the Dow Jones Industrial Average was fractionally down on the year [..] and there were losses for the FTSE 100 in Britain, the CAC 40 in France, the DAX in Germany and the Topix 500 in Japan. Government-bond yields were testing historic lows, particularly in Germany, where the ten-year yield had dropped to 1.06% from 1.93% at the end of 2013; the yield on the equivalent Treasury bond had fallen to 2.42% from 3.03%. The Economist, Aug 16th 2014 August 14 47

48 Why? Over the past five years, the effect of centralbank policy has been to make valuations seem almost irrelevant. A poll by the society for British chartered financial analysts found that 55% of investors believed equities in rich countries were overvalued. However, that still made shares better than the most common alternatives: government bonds (75% thought those were too pricey) and corporate bonds (72% felt they were overvalued). The Economist, Aug 16th 2014 August 14 48

49 You Have Nothing to Fear but..greed! August 14 49

50 The path ahead might be strewn with more than just a few road-bumps August 14 50

51 ..if we run out of liquidity! August 14 51

52 Play It Safe But Not Too Safe Biggest Bank in Italy Largest Player in CEE Subordinated Debt Liquid Split Rating Source: Bloomberg August 14 52

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