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Relative value insights

By separating signals from the noise, Katana enhances your insights and gives you a proven robust framework to navigate your investment space, profitably. Using a robust backtesting framework and a 30-day mean reversion horizon we find that 91% of the pairs identified as “Top Ideas” revert to their mean 30-days later with a median compression of 11bps, and the model performs robustly across a wide spectrum of reversion timescales.

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Katana is cloud native and requires no integration with internal systems or data.

A Trader's View

Katana Labs
,
July 8, 2020

HCOB'22 vs SOCGEN '22 - 08.07.20

Katana Labs
,
June 25, 2020

European Financials 25.06.20

Trade ideas

PEMEX Curve Idea (Swap out of the 5.375% 22's into the 4.875% 24's)

PEMEX Curve Idea (Swap out of the 5.375% 22's into the 4.875% 24's)

September 21, 2020
BUY

PEMEX 4.875% 2024

US716654QBH48
SELL

PEMEX 5.375% 2022

US71654QCE08

Related reports:

Katana allows users to find curve trades for specific issuers in the news. In just a few clicks, users can see a list of market neutral ideas for a particular issuer.

We wanted to highlight PEMEX today because of the optimistic forecast for oil production (1.857m barrels per day in 2021) and prices ( $42.10) in the 2021 Mexican budget.


A spread difference of 113 basis points puts the PEMEX 4.875% 2024's and PEMEX 5.375% 2022's almost 1 standard deviation away (Z-score of .92) from the mean of 47 basis points. If the spread difference reverts back to the mean, then this trade would pick up 67 basis points.

As the Zspread chart shows below the PEMEX 22's have been tightening at faster pace than the PEMEX 24's since mid June. The beginning of the dislocation trend was on June 15, 2020 when the spread difference was -13.

Link to this idea...
Dislocation Detected!  2 High Yield LatAm Sovereigns on the Long End of the Curve

Dislocation Detected! 2 High Yield LatAm Sovereigns on the Long End of the Curve

September 18, 2020
BUY

ELSALV 7.125% 2050

USP01012CA29
SELL

COSTAR 7% 2044

USP3699PGH49

Related reports:

Republic of El Salvador 7.125% 2050 bonds (ELSALV 50's, B-) are lagging behind Republic of Costa Rica 7% 2044 bonds (COSTAR 44's, B) tightening trend.

The spread difference between the two bonds has reached 88bps against an average of 16bps for the last 12 months (2.1 standard deviations).

Link to this idea...
Say this 3 times as fast as you can:  BANSAF IS A BETTER BB BRAZILIAN BANK BOND

Say this 3 times as fast as you can: BANSAF IS A BETTER BB BRAZILIAN BANK BOND

September 16, 2020
BUY

BANSAF 4.125% 2023

US05964TAQ22
SELL

CAIXBR 3.5% 2022

US12803X2B68

Related reports:

The credit spread between Banco Safra S.A. 4 1/8 2023 bonds (BANSAF 23's, BB) and Caixa Economica Federal 3 1/2 2022 bonds (CAIXBR 22's, BB-) has been on a widening trend.

The spread difference between the Brazilian banks, which has been 32bps on average in the last 12 months, is currently at 92bps (1.8 standard deviations). Holders of CAIXBR could increase their carry from 164bps to 256bps for a 3-month extension in maturity and 1 notch improvement in credit rating.

Link to this idea...
This Chilean utility has a shocking spread divergence

This Chilean utility has a shocking spread divergence

September 15, 2020
BUY

AESGEN 4.875% 2029

USP3713QAA50
SELL

SQM 3.625% 2023

USP8718AAF32

Related reports:

Spread widening in Empresa Electrica Angamos S.A. 4 7/8 2029 bonds (AESGEN 29's, USP3713QAA50,BBB-) from 290-305bps in August to 361bps today diverges from the trend for similar bonds across the region.

Katana highlights the dislocation against Sociedad Quimica y Minera de Chile S.A. 3 5/8 2023 bonds (SQM 23's, USP8718AAF32, BBB+) where the spread difference has increased to the highest in the last 12-month. At 227bps, this is 2.5 standard deviations from the mean of 131bps.

Link to this idea...
Swap PETBRA 22's for ECOPET 23's

Swap PETBRA 22's for ECOPET 23's

September 14, 2020
BUY

ECOPET 5.875% 2023

US279158AC30
SELL

PETBRA 6.125% 2022

US71647NAR08

Related reports:

Sharp spread move in Petrobras Global Finance B.V. 6 1/8 2022 bonds (PETBRA 22's, BB-) from 150-200bps to 66bps.

Katana identifies the largest dislocation against Ecopetrol S.A. 5/8 2023 bonds (ECOPET 23's, BBB-).

While ECOPET 23'S have traded 23bps above PETBRA 22's in the last year, the difference is currently 132bps (2.1 standard deviations).

Link to this idea...
Take the profit on RETAIL 5.375% 23's and move into this 2023 Peruvian corporate that has a higher credit rating.

Take the profit on RETAIL 5.375% 23's and move into this 2023 Peruvian corporate that has a higher credit rating.

September 11, 2020
BUY

MILPOC 4.625% 23

USP67848AA22
SELL

RETAIL 5.375% 23

USP56237AA16

Related reports:

Dislocation in short-dated corporates in Peru

InRetail Pharma S.A. 5 3/8 2023 bonds (RETAIL 23's, BB+) rapid tightening during September makes them look expensive against other issuers in LatAM.

Katana identifies one of the largest dislocation in the credit spread between Nexa Resources Peru S.A. 4 5/8 2023 bonds (MILPOC 23's, BBB-) and the RETAIL 23's.

While the difference has been 38bps on average in the last 12 months, it is currently 198bps (2.4 standard deviations).

Link to this idea...
This spread difference is near a 52 week high

This spread difference is near a 52 week high

September 9, 2020
BUY

MEX 8.3% 2031

US91086QAG38
SELL

BRAZIL 6% 2026

US105756BX78

Related reports:

The spread between United Mexican States 8 3/10 2031 bonds (MEX 31's, BBB+) and Federative Republic fo Brazil 6% 2026 (BRAZIL 26's, BB) has been opening up from the LTM average of 2bps in early July to 47bps currently (2 standard deviations).

Both z-spreads reached 400bps at the peak of the sell-off in late April and since then have been on a downward trend. In the last 2 months, the BRAZIL 26's have tightened from 300bps to 215bps while the MEX 31's are at 261bps.

Link to this idea...
Consumer Goods BB- 2023 issue trading wider than 2026 BB- issue

Consumer Goods BB- 2023 issue trading wider than 2026 BB- issue

September 7, 2020
BUY

NATURA 5.375% 2023

USP7088CTF33
SELL

BEEFBZ 6.5% 2026

USL6401PAF01

Related reports:

The z-spread difference between Natura Cosmeticos 5 3/8 2023 bonds (NATURA 23's, BB-) and Minerva Luxembourg 6 1/2 2026 (BEEFBZ 26's, BB-) has jumped from -90bps to 75bps (1.76 standard deviations) since the beginning of September.

While the credit spread on BEEFBZ has decreased by 85bps, the credit spread on NATURA has widened by 80bps.

In the last 12 months, the  difference in the the credit spread of these Brazilian Consumer Goods companies has been -83bps on average and was above the current level only at the peak of the crisis (between mid-March and mid-April).

Link to this idea...
Opportunity within BBVA subsidiaries

Opportunity within BBVA subsidiaries

September 4, 2020
BUY

BANGAN 4.875% 2025

USP1024TAN92
SELL

BCOCPE 5.25% 2029

USP16236AG98

Related reports:
Katana reveals a dislocation in the credit spread between BBVA Colombia SA 4 7/8 2025 bonds (BANGAN 25's, BB+) and BBVA Banco Continental 5 1/4 2029 (BCOCPE 29's, BBB-). The spread between BBVA’s Colombian subsidiary and the Peruvian one oscillated between 0 and 40bps before the general widening begun in March and traded in a wider range of 10-100bps between March and June.
Since early July the spread difference has been on a widening trajectory and is currently at 109bps (2.1 standard deviations from the annual average).
Link to this idea...
Spread Dislocation between BRASKEM 23's and ALPEK 2022

Spread Dislocation between BRASKEM 23's and ALPEK 2022

September 3, 2020
BUY

BRASKM 3.5% 2023

USN15516AA01
SELL

ALPEKA 4.5% 2022

USP01703AA82

Related reports:
With 50bps of tightening in the last 2 weeks, Alpek 4 1/2 2022 bonds (ALPEKA, BBB-) looks expensive against Braskem 3 1/2 2023 (BRASKM 23's, BB+). The spread difference, which has been 7bps on average for the lat 12 months is now at 69bps (1.9 standard deviations). It has only been this high twice this year and was corrected within days.

Link to this idea...
Mexico 4% 2023 alternatives

Mexico 4% 2023 alternatives

September 2, 2020
BUY

COLOM 2.625% 2023 or COLOM 4.5% 2029

USP3772NHK11 or US195325DP79
SELL

MEX 4% 2023

US91086QBC15

Related reports:
Continued tightening in Mexico 4% 2023 bonds (MEX 23's, BBB+) make them look expensive against other LatAM sovereign issuers.
Katana's algorithm identified several sovereign alternatives for the MEX 23's.

Katana shows the largest dislocations against Colombia. The Colombia 2 5/8 2023 bonds (COLOM 23's, BBB-) currently offer a z-spread of 116bps while Mex 23's have tightened to 65bps. The difference of 51bps or more has been observed twice in the last 12 months and reverted within days. The average difference has been 14bps.

For holders of MEX 23's looking to extend duration, the Colombia 4 1/2 2029 bonds (COLOM 29's, BBB-) offer an unprecedented 148bps against an average for the year of 83bps.
Link to this idea...
Curve Alert! The Tencent 2049 & 2028 spread is 2.29 standard deviations away from mean

Curve Alert! The Tencent 2049 & 2028 spread is 2.29 standard deviations away from mean

August 28, 2020
BUY

TENCNT 4.525% 2049

US88032XAQ79
SELL

TENCNT 3.595% 2028

US88032XAG97

Related reports:

The 71bps spread difference between Tencent Holdings 4.525% 2049 and 3.595% 2028 bonds are at a level not seen since March 11th 2020.

71bps is 2.29 standard deviations from a mean of 41bps.
The 28's have been in a tightening trend thru July and August while the 49's have stabilized in August and remain in the 190 area.
Link to this idea...
Republic of Colombia 4.5% 2029 are an attractive alternative for PARGUY 4.7% 27 holders

Republic of Colombia 4.5% 2029 are an attractive alternative for PARGUY 4.7% 27 holders

August 26, 2020
BUY

COLOM 4.5% 2029

US195325DP79
SELL

PARGUY 4.7% 2027

USP75744AE59

Related reports:

The Republic of Colombia 4.5% 2029's look attractive as a swap alternative versus several LaTAM sovereign peers.

The dislocation versus the PARGUY 4.7% 2027's are notable due to Republic of Colombia's higher credit rating and the difference in spread.

Beginning in late July the PARGUY 4.7% 27's tightened from 224bps to 174bps while the COLOM 4.5% 29's only tightened from 233bps to 219bps. The dislocation offers an opportunity for PARGUY 4.7% 27 holders to take profit on the tightening trend and swap into the COLOM 4.5% 29's.

Link to this idea...
ELEBRA 5 3/4 27/10/2021 vs PETBRA 6 1/8 17/01/2022

ELEBRA 5 3/4 27/10/2021 vs PETBRA 6 1/8 17/01/2022

August 22, 2020
BUY

ELEBRA 5 3/4 27/10/2021

US15234QAL23
SELL

PETBRA 6 1/8 17/01/2022

US71647NAR08

Z-spread difference: 72bps Z-spread mean: 25bps

Related reports:

The z-spread on Electrobras 5 3/4 2021 bonds (ELEBRA 21s, BB-) has almost doubled since the start of the week, from 175bps to 335bps, which makes them relatively cheap against multiple other bonds in the region. The largest dislocation is against the Petrobras 6 1/8 2022 bonds (PETBRA 22s, BB-), where the z-spread difference has jumped to 189bps from an average of 32bps in the last twelve months (1.44 standard deviations).

Link to this idea...
HONDURAS 6.25% 27 SWAP IDEAS

HONDURAS 6.25% 27 SWAP IDEAS

August 22, 2020
BUY

TRITOB 4.375% 2024 or DOMREP 5.5% 2025

USP93960AF25 or USP3579EBD87
SELL

HONDUR 6.25% 2027

USP5178RAC27

Related reports:

The tightening in Republic of Honduras 6.25% 2027 bonds (HONDUR 27s, B+) from 450bps in mid-July to 354bps now makes them look expensive relative to other sovereign issuers in Latam.

The biggest dislocation is against Republic of Trinidad and Tobago 4.375% 2024 bonds (TRITOB 24s, BB+), where the spread difference has narrowed from an average of -134bps to -36bps (2.16 standard deviations). TRITOB 24s being 3 years shorter and rated 3 notches higher, this is a defensive trade to increase credit quality and reduce duration at a low cost.

Holders of the HONDUR 27s looking to pick up spread could alternatively switch to Dominican Republic 5% 2025 bonds (DOMREP 25s, BB-). Two years shorter and 1 notch better rated, DOMREP 25s currently offer a pick up of 51bps against an average of -14bps (1.21 standard deviations).

Link to this idea...