Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>In my monthly recap note, I provide a performance update of my trade recommendations in emerging markets FX and rates.</li>
<li>Of the total of 35 trade recommendations made so far, I have recommended closing 25 of which 18 were in the money.</li>
<li>I also update my views on the open trade recommendations and go over the rationale behind those that I closed recently.</li>
</ul>


In my monthly recap note, I provide a performance update of my trade recommendations in emerging markets FX and rates.
Of the total of 35 trade recommendations made so far, I have recommended closing 25 of which 18 were in the money.
I also update my views on the open trade recommendations and go over the rationale behind those that I closed recently.


Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – March 2022

<ul>
<li>With the volatility of US rates remaining elevated, it is a good time to evaluate how my thematic recommendation for 2022 of curve steepening trades in EM is playing out.</li>
<li>The slopes of rate curves in EM have stabilized even as they continue to flatten in the US and, more broadly, DM – a break in correlation that should persist.</li>
<li>EM curves should start steepening as ex-Asia they are ahead of DM in rate-hiking cycles and their worsening debt dynamics should keep the risk premium elevated in the long end.</li>
</ul>


With the volatility of US rates remaining elevated, it is a good time to evaluate how my thematic recommendation for 2022 of curve steepening trades in EM is playing out.
The slopes of rate curves in EM have stabilized even as they continue to flatten in the US and, more broadly, DM – a break in correlation that should persist.
EM curves should start steepening as ex-Asia they are ahead of DM in rate-hiking cycles and their worsening debt dynamics should keep the risk premium elevated in the long end.


An Update on High Conviction 2022 Thematic Rate Curve Steepening Trades in EM

<ul>
<li>In this week’s Alpha Bites, I recommend closing the cross-country rates trade to pay Poland 5y against receiving Czech 5y rate, a recommendation I made in July.</li>
<li>I had recommended the trade because the Polish central bank was behind the curve in addressing accelerating inflation, which it is attempting to correct now by hiking aggressively.</li>
<li>With the Czech central bank having been hawkish and ahead of the curve, the rate differential between the two is narrowing as rates in Poland rise.</li>
</ul>


In this week’s Alpha Bites, I recommend closing the cross-country rates trade to pay Poland 5y against receiving Czech 5y rate, a recommendation I made in July.
I had recommended the trade because the Polish central bank was behind the curve in addressing accelerating inflation, which it is attempting to correct now by hiking aggressively.
With the Czech central bank having been hawkish and ahead of the curve, the rate differential between the two is narrowing as rates in Poland rise.


Alpha Bites: Take Profits on Receive Czech 5y Vs Pay Poland 5y Rate

<ul>
<li>US yields have jumped higher and the US dollar has strengthened on the back of higher-than-expected inflation prints and speculation of change at the Fed's helm.</li>
<li>EM rates have also moved higher as their correlation with US rates is currently on the high end of the historical range.</li>
<li>The bout of volatility has resulted in outliers, and therefore potential trading opportunities, within EM countries based on their performance relative to their respective betas.</li>
</ul>


US yields have jumped higher and the US dollar has strengthened on the back of higher-than-expected inflation prints and speculation of change at the Fed's helm.
EM rates have also moved higher as their correlation with US rates is currently on the high end of the historical range.
The bout of volatility has resulted in outliers, and therefore potential trading opportunities, within EM countries based on their performance relative to their respective betas.


Outliers Within EM Rates Amid Rising Volatility of US Rates

<p>Poland's central bank surprised the market with an aggressive rate hike of 75 bp last week when the expectation was for 25 bp. This action supported my long-held recommendation to pay Poland 5y against receiving Czech 5y rate. However, I recommend holding on to the trade as the central bank remains behind the curve with inflation continuing to be a concern. Moreover, the government is adding further fiscal stimulus, which should be inflationary as well. Finally, Poland's ongoing row with the EU may result in the latter withholding funds, which if it were to happen would be negative for all Polish assets.</p><p>Separately, the attached file is a snapshot of the EM 10y rates market in which I seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.</p>

Poland's central bank surprised the market with an aggressive rate hike of 75 bp last week when the expectation was for 25 bp. This action supported my long-held recommendation to pay Poland 5y against receiving Czech 5y rate. However, I recommend holding on to the trade as the central bank remains behind the curve with inflation continuing to be a concern. Moreover, the government is adding further fiscal stimulus, which should be inflationary as well. Finally, Poland's ongoing row with the EU may result in the latter withholding funds, which if it were to happen would be negative for all Polish assets.Separately, the attached file is a snapshot of the EM 10y rates market in which I seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Czech Republic

A vanilla interest rate swap us an agreement between two counterparties to exchange cashflows (fixed vs floating) in the same currency. This agreement is often used by counterparties to change their fixed cashflows to floating or vice versa. The payments are made during the life of the swap in the frequency that is pre-established by the counterparties.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
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CZK 5Y (CKSW5 CURNCY)

Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – March 2022

I provide a performance update of all my trade recommendations along with discussing the open trades. I have closed 25 of the 35 trades recommended...

Gautam Jain, PhD, CFA

An Update on High Conviction 2022 Thematic Rate Curve Steepening Trades in EM

Revisiting my thematic recommendation for 2022, EM rate curves should start steepening as ex-Asia they are ahead of DM in rate-hiking cycles and...

Gautam Jain, PhD, CFA

Alpha Bites: Take Profits on Receive Czech 5y Vs Pay Poland 5y Rate

I recommend closing the cross-country trade – Pay Poland 5y vs Receive Czech 5y rate. With Poland’s central bank hiking aggressively after being...

Gautam Jain, PhD, CFA

Outliers Within EM Rates Amid Rising Volatility of US Rates

The bout of volatility ins US rates has resulted in outliers, and therefore potential trading opportunities, within EM countries based on their...

Gautam Jain, PhD, CFA

Rates in Poland Catching up With Peers

Poland's surprisingly aggressive rate hike last week was supportive of my recommendation to pay Poland 5y vs Czech 5y, which I suggest continuing...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)