FX | Rates | Trade Idea
MH Model Portfolio: Hedging NOK Downside Risks Via a 1m Put Spread
- By Bilal Hafeez
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Portfolio Changes
We entered one new trade since the previous update, and closed one, with our portfolio up 0.4% since last week.
New Trades
1M NOK/SEK 1×2 Put Spread
We enter a 1M 0.9520×0.9420 1×2 NOK/SEK put spread (0 outlay, but downside sub ~0.9310/20 on exp) to hedge against short term risks to our core long NOK/SEK trade.
Exited Trades
Close Out JGB 10s30s Flattener
Since our last update, two key factors went in favour of our trade. First, Japan’s MoF announced it will cut issuance ultras by a greater than expected ¥3.2tn which should help alleviate concerns around excess supply. Moreover, the BoJ also chose to slow down the pace of taper, which further supports the ultras market.
In response, 30y year JGBs have stabilised, but failed to catch a bid relative to the 10y resulting in a further steepening of the 10s30s curve past our stop loss of 1.5% netting a loss of 8 bps.
Historic Performance
Our portfolio rose 0.4% since last week and is now up TKTK% YTD. The portfolio has returned +66.5% since inception (+10.0% annualised), with a 0.8 Sharpe ratio. This continues to place it above the average discretionary macro hedge fund since inception, which has gained 49% (Bloomberg: BHDMAC Index; Chart 1).
Chart 1: Portfolio Performance Versus Macro HF Index
Current Trades
DM
Rates
- Short 30y UST (50% position) (entry: 4.84%, target: 5.12%, stop: 4.70%) – read here.
- Long SOFR Dec 25 (50% position) (entry: 96.130, target: 96.900, stop: 95.810) – read here.
- Long SONIA Dec 26 (entry: 96.320, target: 97.000, stop: 96.150) – read here.
- BTP-Bund Widener (entry: 1.02%, target: 1.30%, stop: 0.88%) – read here.
- Euribor Z5/Z6 Steepener (entry: 0.175, target: 0.550, stop: 0.000) – read here.
- Pay 1y EUR Inflation Swap (entry: 1.39%, target: 1.90%, stop: 1.15%) – read here.
- Long 10y UK Linker (entry: 1.210%, target: 0.200%, stop: 1.700%) – read here.
- Long Corra Dec 25 (entry: 97.645, target: 98.000, stop: 97.500) – read here.
FX
- Short AUD/NZD (entry: 1.0793, target: 1.04, stop: 1.0950) – read here.
- Long EUR/GBP (entry: 0.853, target: 0.900, stop: 0.815) – read here.
- Short DXY (50% position) (entry: 99.80, target: 90.00, stop: 103.50) – read here.
- Long NOK/SEK (entry: 0.9415, target: 1.000, stop: 0.918) – read here.
- Long NOK/SEK put spread (0 outlay, but downside sub ~0.9310/20 on exp) – read here.
EM
Rates
- Long 10Y CGB via onshore futures (TFTM5 at 107.315) (entry: 1.85%, target: 1.45%, stop: 1.75%) – read here.
FX
- Long USD/CNH Jun 25 7.3×7.4 call spread (entry: 13bp, target: 60bp) – read here.
- Short EUR/ZAR (entry: 20.670, target: 19.800, stop: 21.100) – read here.
- Long EUR/PLN (50% position) (entry: 4.270, target: 4.450, stop: 4.180) – read here.
Commodities
- Long XAU/USD (50% position) (entry: $3,370, target: $3,600, stop: $3,270) – read here.
To see a full list of our trades since inception to the end of 2023, please see here.
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