Because forwards are currently inverted, clients are able to purchase options with a higher positive roll from
forwards to spot than the premium initially paid
Overview on current market dynamics:
This years USD interest rate curve flattening in 5s10s can be decomposed into three distinct phases:
() the market repricing Fed tapering in the 10y sector
(ii) China's intervention on USDCNY, building up official foreign reserves
(iii) increase of deflation and QE expectations out of Europe
Hypothetical PnL at Expiry
100.00
( titian! (1.1) 51141f rt 7114,1 E
80.00
60.00
MPriaturirt
40.00
Profit
20.00 LOA
000 i-
4)) 60 80 100 120 140
-20.00
0133:a:4E to;:y :at%
One 1y10y/10y swap rate vs. 1y5y/5y swap rate (as of 10/07/2014)
1.g
1.1
Nov-10 Apr-12 Aug-13 Dec-14
Positioning research suggests steepeners are less crowded among real money investors
0.03%
us rt. , moray
?elope postortino Crowded steepeners
0.03% in 04 2013 ahead of
d •-0 staeperars
tflaartaral Oatteneng Pra.rr. in
0.02% HI .7/314
0.02%
0.01%
0.01%
0.0414 kh
Crowded 444teners
4.01% ahead efi OE tapenng
announorrn•r4 and
4.01% b sup•persrg
:come
-on%
Mor42 Sop-12 Mar-13 Sep-13 Mar-14 Sep-14
(DB GM Research: Global Fixed Income Weekly — 10/03/14)
Please note all prices are indicative and subject to change without notice.
CONFIDENTIAL — PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0 124758
CONFIDENTIAL SDNY_GM_00270942
EFTA01462280