Paper Portfolio – April Update

March was not a good month for the paper portfolio for a number of reasons. Firstly, BTP’s  having performed very nicely at the beginning of the month, nosedived just in time for my bond option on 5y BTP’s to fail to make me very much money. I expected a payout close to EUR 1.4mio, and ended up with a measly  250k. Very frustrating.  Secondly, I took a view on the long end of the Euro curve that turned out to be completely and utterly wrong. I expected that the ECB would focus on buying shorter maturity bonds, and that the people they bought those bonds from would seek to replace them with 10y bonds, but would not buy more duration, but extend themselves in the credit curve by buying peripheral bonds. This is another reason I bought my calls on 5y BTPs. Unfortunately, whilst i was right that the ECB would focus on shorter maturities in their purchases of German govies, I was wrong about the market impact. 10’s30’s flattened a great deal and within a fortnight I was stopped out of my position for a loss of EUR 840k. Smarting from these two big hits, I’ve scaled  back a bit and haven’t got much directional risk on for the time being.

1.  Sell 100mio 1y7y 0.85% payers, buy 100mio 1y7y 0.435% receivers in EUR, entry 20-Jan-15  – +665k EUR

I’ll probably unwind this. I wanted to hold a nice carry trade, and this has done well. Never had a negative mark to market despite some swings around in the 7y point, the skew and roll down protected me well.

2. Buy 1 x 2 Payer spread in JPY, 6m => 10y ,  0.6 /  0.81, Entry 05-Feb-15  +145k EUR

After a hairy start  immediately getting up to my first strike, this one has  calmed down and is now behaving as it was supposed to. Grit teeth and hold.

3. Buy £100m 3m => 10y  Receiver Ladder, strikes: 1.80 / 1.65 / 1.52, entry 17-Feb-15, +275k EUR

This guy has done ok, but the carry has not been as good as I hoped just because I’m short the vol, and the vol has performed very well. Still ITM, happy to hold and wait for the final month or even couple of weeks to buy back the really low strikes and monetise.

4. Buy EUR 50mio Worst of 18-Sep-15  SX5E puts at 3453 / 1bio 10y Rates Caps @ 70 For 64cts fwd Prem, Entry 13-Mar-15,  -320k EUR

I’ll never see my premium for this one ever again. Should have waited for a better entry level, this is a worst of where you get paid if there’s a generalised puke in EZ assets, which given every single discretionary macro guy in the world is long to the hilt of them is not impossible even with the ECB buying. However, as soon as I put this one on, Equities and Rates  both rallied hard, so very unlikely to ever be any use.

5. Buy 40mio 1y 1 x 2 Receiver spread on 30y EUR 0.90 / 0.55 strikes, Entry 25-Mar-15, +240,000 EUR

This is a real snore trade, but I wanted to get it on while the volatility was high enough to get me a nice wide strike range for this 1 x 2. I make money all the way down to 0.20% on 30y rates at expiry, and if 30y rates are printing much below 0.20% then I doubt I’ll be working anyway.

6. Buy 10mio UKT 45’s vs 24’s at 74.75bp, Entry 25-Mar-15, +75,000 GBP

I wanted to take advantage of relatively tight supply in 30y gilts, and what I thought would be the likelihood of cash being put to work by UK real money over the year end. However, it’s best to keep it light and tight in the UK long end for me as I don’t really get to see the main flows in the sector.

7. Buy 25k UB spreads vs RX spreads at -13.25, Entry 31-Mar-15, -100k EUR

This trade makes money if 30y german government bonds outperform 10ybonds, relative to swaps. It is a very pure RV trade, and is flow based. At the moment, the flows of ECB buying are dominant, and they are focussed on the 10y, so the 10y is very rich. This box trades in a range -18 to -0, so I’ll add some at -17 and stop out at -20.


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