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Dislocation in Long-dated BBB US Credit

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Dislocation in Long-dated BBB US Credit

Dislocation in Long-dated BBB US Credit

January 13, 2021
BUY

CHTR 5 3/4 01/04/2048

US161175BN35
SELL

WBA 4 1/10 15/04/2050

US931427AT57

Related reports:

Sharp tightening in Walgreens Boots Alliance 4.1% 2050 (WBA 50's, BBB) make them look expensive against other BBB credits. Katana identifies the largest dislocation against Charter Communications Operating 5.75% 2048 (CHTR 48's, BBB-), which has on average traded 12bps over WBA 50's and currently trades 43bps over (2.8 standard deviations). Holders of WBA 50's have the opportunity to take profits at 217bps and switch into CHTR 48's at 259bps, with a potential reversion of 31bps were the spread difference to return to the mean.

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

Ally Financial Cheap vs GM Financial Company

Ally Financial Cheap vs GM Financial Company

January 27, 2021
BUY

ALLY 1 9/20 02/10/2023

US02005NBL38
SELL

GM 3 11/20 08/07/2022

US37045XCU81

Related reports:

The spread difference between Ally Financial 1.95% 2023 (ALLY 23's, BBB-) and General Motors Financial Company 3.65% 2022 (GM 22's, BBB-) has been inverted. ALLY 23's have historically traded under GM 22's, but currently trade 23bps wider (2 standard deviations). Holders of GM 22's have the opportunity to take profits at 34bps and switch into ALLY 23's at 57bps.

Link to this idea...
Wells Fargo Looking Expensive vs Bank of America

Wells Fargo Looking Expensive vs Bank of America

January 26, 2021
BUY

BAC 2 74/125 29/04/2031

US06051GJB68
SELL

WFC 5 3/8 07/02/2035

US949746JM44

Related reports:

Sharp tightening in WFC 35's makes them look expensive vs peers. We highlight the dislocation in spread difference between BAC 31's and WFC 35's, which has increased from -24bps to +5bps. Holders of WFC 35's have the opportunity to take profits at 89bps and switch into BAC 31's at 94bps.

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AEP Cheap vs ONE Gas

AEP Cheap vs ONE Gas

January 25, 2021
BUY

AEP 3 13/20 01/04/2050

US00115AAM18
SELL

OGS 4 329/500 01/02/2044

US68235PAF53

Related reports:

The sharp tightening in ONE Gas 4.658% 2044 (OGS 44's, A) makes them look expensive against other utilities. Katana identifies a significant dislocation against AEP Transmission Company 3.65% 2050 (AEP 50's, A). AEP 50's have historically traded through OGS 44's by between 20 and 60bps. Due to the sudden move in OGS 44's, they now trade at the same spread. Holders of OGS 44's have the opportunity to take profits at 125bps and switch into AEP 50's at 126bps, with a potential reversion of 34bps were the spread difference to return to the historical mean.

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BROADCOM Looking Cheap vs Hewlett Packard

BROADCOM Looking Cheap vs Hewlett Packard

January 22, 2021
BUY

AVGO 4 1/4 15/04/2026

US11135FAZ45
SELL

HPE 4 9/10 15/10/2025

US42824CAW91

Related reports:

The spread difference between BROADCOM 4.25% 2026 (AVGO 26's, BBB-) and Hewlett Packard 4.9% 2025 (HPE 25's, BBB) is at its highest as HPE 25's have been tightening faster than AVGO 26's since early December. The exponentially weighted mean of the difference has increased from 10bps to 24bps and currently AVGO 26's are trading 29bps wider. Holders of HPE 25's have the opportunity to take profits at 68bps and switch into AVGO 26's at 97bps.

Link to this idea...
Spread Inversion in Truist Financial vs JPMorgan

Spread Inversion in Truist Financial vs JPMorgan

January 21, 2021
BUY

TFC 1 19/20 05/06/2030

US89788MAB81
SELL

JPM 3 5/8 01/12/2027

US46625HRX07

Related reports:

Truist Financial Corporation 1.95% 2030 (TFC 30's, A-) have historically traded more than 20bps under JPMorgan Chase 3.625% 2027 (JPM 27's, A-). The spread difference has inverted and TFC 30's currently trade 5 bps wider (2.8 standard deviations). Holders of JPM 27's have the opportunity to take profits on the sharp tightening at 60bps and switch into the TFC 30's at 65bps, with a potential reversion of 32bps were the spread difference to return to the average.

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Dislocation in JPM vs BofA

Dislocation in JPM vs BofA

January 18, 2021
BUY

JPM 2 83/1000 22/04/2026

US46647PBK12
SELL

BAC 3 93/1000 01/10/2025

US06051GGT04

Related reports:

The spread between JP Morgan 2.083% 2026 (JPM 26's, A) and Bank of America 3.093% 2025 (BAC 25's, A) has increased to its highest level. While JPM 26's have on average traded under BAC 25's, it currently trades 10bps wider (2.8 standard deviations). Holders of BAC 25's have the opportunity to take profits at 38bps and switch into the JPM 26's at 49bps, increasing carry and potentially generating alpha were the spread difference to return to the mean.

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Update - Dislocation in General Motors Financial Company Curve - 10 basis point reversion since initial post

Update - Dislocation in General Motors Financial Company Curve - 10 basis point reversion since initial post

January 15, 2021
BUY

GM 2 3/4 20/06/2025

US37045XCX21
SELL

GM 3 1/2 07/11/2024

US37045XCD66

Related reports:

Update on Trade Idea posted earlier this week -
Spread difference on Long GM 2.75% 2025/ Short GM 3.5% 2024 trade idea has reverted 10 basis points since initial post.

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Inversion in Long-dated US Utilities

Inversion in Long-dated US Utilities

January 14, 2021
BUY

ETR 3 3/4 15/06/2050

US29364GAK94
SELL

NI 4 4/5 15/02/2044

US65473QBC69

Related reports:

The spread difference between Entergy Corporation 3.75% 2050 (ETR 50's, BBB) and NiSource Inc. 4.8% 2044 (NI 44's, BBB) has inverted. ETR 50's have historically traded tighter than NI 44's, on average by 15bps, but currently trade 8bps wider (2.7 standard deviations). Holders of NI 44's have the opportunity to increase carry and profit from a potential 23bps reversion were the spreads return to their historical difference.

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Dislocation in Long-dated BBB US Credit

Dislocation in Long-dated BBB US Credit

January 13, 2021
BUY

CHTR 5 3/4 01/04/2048

US161175BN35
SELL

WBA 4 1/10 15/04/2050

US931427AT57

Related reports:

Sharp tightening in Walgreens Boots Alliance 4.1% 2050 (WBA 50's, BBB) make them look expensive against other BBB credits. Katana identifies the largest dislocation against Charter Communications Operating 5.75% 2048 (CHTR 48's, BBB-), which has on average traded 12bps over WBA 50's and currently trades 43bps over (2.8 standard deviations). Holders of WBA 50's have the opportunity to take profits at 217bps and switch into CHTR 48's at 259bps, with a potential reversion of 31bps were the spread difference to return to the mean.

Link to this idea...
Dislocation in General Motors Financial Company Curve

Dislocation in General Motors Financial Company Curve

January 12, 2021
BUY

GM 2 3/4 20/06/2025

US37045XCX21
SELL

GM 3 1/2 07/11/2024

US37045XCD66

Related reports:

The spread difference between General Motors Financial Company 2.75% 2025 (GM 25's, BBB-) and the 3.5% 2024 (GM 24's, BBB-) has increased sharply. Both bonds have historically traded within 10bps of each other and on average GM 25s have traded 1bps tighter but currently trade 20bps wider (3.15 standard deviations). Holders of GM 24's have the opportunity to take profits on the recent tightening and switch into GM 25's for higher carry and potential reversion of 21bps.

Link to this idea...
In the Money: BP Capital Markets America vs Enterprise Products Operating

In the Money: BP Capital Markets America vs Enterprise Products Operating

January 12, 2021
BUY

BPLN 2 937/1000 06/04/2023

US10373QBH20
SELL

EPD 3 3/4 15/02/2025

US29379VBE20

Related reports:

On 22 December we published the trade idea to buy BP Capital Markets America 2.937% 2023 (BPLN 23's, A) and sell Enterprise Products Operating 3.75% 2025 (EPD 25's, BBB+) at a spread difference of 6bps. Since then the spread difference has compressed by 19bps.

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Inversion in US Financials

Inversion in US Financials

January 11, 2021
BUY

MET 4 11/20 23/03/2030

US59156RBZ01
SELL

KKR 3 3/4 01/07/2029

USU49495AA91

Related reports:

The spread difference between MetLife 4.55% 2030 (MET 30's, A-) and KKR Group Finance Co. VI 3.75% 2029 (KKR 29's, A) has been inverted. MET 30's have on average traded 38bps under, but as KKR 29's have tightened the spread is now 3bps over (2.15 standard deviations). Holders of KKR 29's have the opportunity to take profits at 73bps and switch into MET 30's at 76bps.

Link to this idea...
In the Money: Bank of America and AT&T Curve Dislocations Corrected

In the Money: Bank of America and AT&T Curve Dislocations Corrected

January 8, 2021
BUY

BAC 3 183/500 23/01/2026, T 3 13/20 01/06/2051

US06051GGZ63, US00206RKA94
SELL

BAC 2 57/125 22/10/2025, T 3 3/10 01/02/2052

US06051GHW24, US00206RKE17

Related reports:

The dislocations in Bank of America and AT&T curves identified earlier this week have been corrected. On Monday we published an idea to buy Bank of America 3.366% 2026 and sell the 2.456% 2025 at a spread difference of 35bps. The spread narrowed to 1bps the day after and is currently at 15bps.

On Tuesday we identified an idea to buy AT&T 3.65% 2051 and sell the 3.3% 2052 at a spread difference of 22bps. The spread has come back all the way to 2bps and is currently at 7bps.

Link to this idea...
Reversion Opportunity of 70bps in US MidstreamEnergy

Reversion Opportunity of 70bps in US MidstreamEnergy

January 6, 2021
BUY

EPD 4 3/20 16/10/2028

US29379VBT98
SELL

MPLX 4 1/4 01/12/2027

US55336VBN91

Related reports:

The spread difference between Enterprise Products Operating 4.15% 2028 (EPD 28's, BBB+) and MPLX 4.25% 2027 (MPLX 27's, BBB) has been inverted. EPD 28's have on average traded 67bps tighter than MPLX and currently trade 4bps wider (2.8 standard deviations). Holders of MPLX have the opportunity to take profits at 89bps and switch into the better-rated EPD at 93bps, with potential alpha of 70bps where the spread difference return to the mean.

Link to this idea...
Dislocation in AT&T Curve

Dislocation in AT&T Curve

January 5, 2021
BUY

T 3 13/20 01/06/2051

US00206RKA94
SELL

T 3 3/10 01/02/2052

US00206RKE17

Related reports:

The spread between AT&T 3.65% 2051 (T 51's, BBB) and 3.3% 2052 (T 52's, BBB) has increased sharply as the T 52's tightened while the T 51's widened. The T 51's have on average traded 3bps over the T 52's and currently trade 22bps over (3.3 standard deviations). Holders of T 52's have the opportunity to take profits at 191bps and switch into the T 51's at 213bps, increasing carry and potentially generating alpha of 19bps where the spread difference return to the average.

Link to this idea...
Dislocation in Bank of America Curve

Dislocation in Bank of America Curve

January 4, 2021
BUY

SELL

Related reports:

The spread difference between Bank of America Corporation 3.366% 2026 (BAC 26's, A) and 2.408% 2025 (BAC 25's, A) bonds has widened sharply. BAC 25's have tightened from 44bps to 16bps, while BAC 26's have remained stable at 51bps. The spread difference, which on average on average has been 6bps during the last 12 months hans increased to 35bps (2 standard deviations). An opportunity for holders of BAC 25's to take profits and increase carry.

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Spread Inversion in US Energy

Spread Inversion in US Energy

December 22, 2020
BUY

BPLN 2 937/1000 06/04/2023

US10373QBH20
SELL

EPD 3 3/4 15/02/2025

US29379VBE20

Related reports:

The spread between BP Capital Market America Inc. 2.937% 2023 (BPLN 23's, A) and Enterprise Products Operating LLC 3.75% 2025 (EPD 25's, BBB+) has been inverted in the last week. BPLN 23's have on average traded 29bps tighter to EPD 25's but is currently trading 6bps over (3 standard deviations). Holders of EPD 25's have the opportunity to take profits at 28bps and switch into the better-rated BPLN at 34bps, with expected compression of 35bps were the spread difference to return to the mean.

Link to this idea...
Dislocation in Long-date US Utilities

Dislocation in Long-date US Utilities

December 21, 2020
BUY

BRKHEC 4 1/2 01/02/2045

US084659AF84
SELL

WTRG 3 351/1000 15/04/2050

US29670GAE26

Related reports:

The spread difference between Berkshire Hathaway Energy Company 4.5% 2045 (BRKHEC 45's, A-) and Essential Utilities, Inc. 3.351% 2050 (WTRG 50's, BBB) has increased to the highest level in the last 12 months. While BRKHEC 45's have on average traded 6bps under WTRG 50's, they currently trade 16bps over (2.4 standard deviations). Since mid-November, when both credits traded at 160bps, WTRG 50's have tightened to 145bps while BRKHEC 45's have widened to 161bps.

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Spread Inversion in US Utilities

Spread Inversion in US Utilities

December 18, 2020
BUY

PPL 4 1/8 15/04/2030

US69352PAQ63
SELL

NRG 3 3/4 15/06/2024

USU66962AR90

Related reports:

The spread difference between PPL Capital Funding Inc. 4.125% 2030 (PPL 30's, BBB) and NRG Energy Inc. 3.75% 2024 (NRG 24's, BBB-) is inverted. While PPL 30's have on average traded 14bps through NRG 24's, they currently trade 30bps over (2.1 standard deviations). Holders of NRG 24's can take profits at 74bps and switch into PPL 30's at 104bps, with an expected compression of 44bps if the spread difference returns to the mean.

Link to this idea...
Dislocation in Long-dated US Industrials

Dislocation in Long-dated US Industrials

December 17, 2020
BUY

RTX 3 1/8 01/07/2050

US75513EAC57
SELL

CAT 5 1/5 27/05/2041

US149123BS95

Related reports:

The spread difference between Raytheon Technologies Corporation 3.125% 2050 (RTX 50's, BBB+) and Caterpillar Inc. 5.2% 2041 (CAT 41's, A) has widened sharply. RTX 50's have on average traded 3bps over CAT 41's, however as CAT 41's tightened RTX 50's have widened, increasing the spread difference to 25bps (2.2 standard deviations). Holders of CAT 41's have the opportunity to take profits at 113bps and switch into RTX 50's at 138bps, with a potential compression of 22bps were the spread difference return to the mean.

Link to this idea...