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Dislocation in the CEMEX curve

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Dislocation in the CEMEX curve

Dislocation in the CEMEX curve

August 6, 2020
BUY

CEMEX 6.125% 2025

US151290BS15
SELL

CEMEX 7.75% 2026

US151290BU60

August 6th 2020

Interesting dislocation in the Cemex curve.
The 26s have been tightening faster than the 25s over the last week. At current levels, holders of the 26s could monetize the gains and pick up 125bps in yield by switching to the 25s.  
Over the last year the 25s have been on average 25bps lower than 26s, so this is a shift of 150bps, over 2.45 standard deviation.

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

4 Curve Trade Ideas in EUR Investment Grade Bonds

4 Curve Trade Ideas in EUR Investment Grade Bonds

September 26, 2020
BUY

KO 0 1/2 08/03/2024, C 1 1/4 10/04/2029, NAB 2 3/4 08/08/2022, GS 2 1/8 30/09/2024

XS1574672397,XS1980064833, XS0813400305, XS1116263325
SELL

KO 1 1/8 22/09/2022, C 0 1/2 29/01/2022, NAB 0 7/8 20/01/2022, GS 2 0 27/07/2023

XS1112678559, XS1939355753, XS1167352613, XS1265805090

The Katana dashboard alerted users to 4 curve trades in the EUR Investment Grade market. If you want to see curve trade ideas daily, let us know.

Link to this idea...
3 more of our ideas that are in the money (This is our 5th in the money update)

3 more of our ideas that are in the money (This is our 5th in the money update)

September 25, 2020
BUY

MILPOC 4.625% 23, BRASKM 3.5% 2023, NATURA 5.375% 2023

USP67848AA22, USN15516AA01, USP7088CTF33
SELL

RETAIL 5.375% 23, ALPEKA 4.5% 2022, BEEFBZ 6.5% 2026

USP01703AA82, USP7088CTF33, USL6401PAF01

Update - ECOPET 2023 PETBRA 2022 Idea Picked Up 94 basis points in 10 Days

Update - ECOPET 2023 PETBRA 2022 Idea Picked Up 94 basis points in 10 Days

September 24, 2020
BUY

ECOPET 5.875% 2023

US279158AC30
SELL

PETBRA 6.125% 2022

US71647NAR08

You might be asking yourself - "Self, how does Katana find these ideas?"

We want you to know that we are not manually trying to come up with these ideas. That would be like looking for a needle in a haystack.

Manually trying to find trade ideas

Each morning we are able to look at a list of "Top Ideas" that were identified by the Katana algorithm. We add a little bit of copy to an idea that looks interesting and then post for your enjoyment.

Your next question might be - "Self, that didn't really answer my question. How does Katana find the ideas?"

Ahh. Sorry.

The Katana algorithm leverages Google Cloud Platform AI models to analyze over 200 million bond pairs over multiple bond universes* for spread dislocations. Once identified, they are ranked by Zscore, Similarity and Reversion.

The results have been quite impressive so far. Our engineers found that 91% of the pairs identified as “Top Ideas” revert to their mean separations 30-days later with a median compression of -11 bps.

*
EUR Investment Grade, EUR Governments, USD Emerging Market Sovereigns, USD Emerging Market Corporates (more to come) 

Back to the update for the ECOPET 5.875% 2023 / PETBRA 6.125% 2022 trade idea:

On September 14th 2020, we posted that the sharp spread movement in the PETBRA 6.125% 2022's as an opportunity to take profit and swap into the ECOPET 5.875% 2023.

September 14th 2020

The PETBRA 6.125% 2022's have snapped back while the ECOPET 5.875% 2023's have widened slightly higher.

Zspreads

The 132 basis point spread between the two reverted back to the mean and now stands at 38.8 basis points.

Zspread Difference

The following picture is a summary that you can reference when you book your demo -


Link to this idea...
EUR Investment Grade Idea: HSBC 1.5% 2024's are wider than C 1.625% 2028's

EUR Investment Grade Idea: HSBC 1.5% 2024's are wider than C 1.625% 2028's

September 23, 2020
BUY

HSBC 1.5% 2024

XS1917601582
SELL

C 1.625% 2028

XS1795252672

Katana identifies a dislocation between HSBC Holdings plc 1 1/2 2024 bonds (HSBC 24's, A+) and Citigroup Inc 1 5/8 2028 bonds (C 28's, A). HSBC 24's traded around 10bps tighter than C 28's before the sell-off in March-April.

Since then the difference has been gradually inverting and this accelerated in September.
Shorter-dated and rated 1 notch higher, HSBC 24's currently pay 94.8bps, 22.6bps more than C 28's (2.1 standard deviation from the last 12 months average of -0.7bp).

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Dislocation in LatAm utilities

Dislocation in LatAm utilities

September 22, 2020
BUY

PROMIG 3.75% 2029

USP7922TAA7Q
SELL

TRANSM 4.375% 2023

USP3083SAC90

The difference in the z-spread between Promigas S.A. E.S.P. 3 3/4 2029 bonds (PROMIG 29's, BBB-) and Consorcio Transmantaro S.A. 4 3/8 2023 bonds (TRANSM 23's, BBB) has increased to the highest level in the last 12 months. At 186bps, the spread between the 2 utilities is at 2.4 standard deviations from the yearly average of 96bps.

Holders of TRANSM 23's can look at the opportunity to take profits on the recent tightening from 190bps to 130bps since the beginning of September and switch to the longer dated PROMIG 29's at 315bps.

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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

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.

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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% 20

USP3699PGH49

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).

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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

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.

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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

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.

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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

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

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

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.

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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

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).

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Opportunity within BBVA subsidiaries

Opportunity within BBVA subsidiaries

September 4, 2020
BUY

BANGAN 4.875% 2025

USP1024TAN92
SELL

BCOCPE 5.25% 2029

USP16236AG98

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).
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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

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

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.
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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

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.
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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

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.

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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

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).

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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

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...