OREANDA-NEWS. August 10, 2011. Primary Market:

A minimal volume of the 26205 issue was placed this morning (10 Aug), which was to be expected in light of the global sell-off. Minfin decided not to replace the 26205 issue with a shorter duration bond in order to be consistent with its recently published debt policy principles, in which it states that the OFZ’s portfolio duration should be increased to five years. We believe there may still be a secondary placement of the 26205 issue as witnessed last year.

Observations & Recommendations

We have seen a tremendous sell-off in the OFZ curve this week with week-to-date yields up 50-60 bpts. That said, the trade idea we presented in our previous monitor (buy the spread between 25077s and 25072s via futures) has offered a solid performance of +1.6% due to today’s rebound. If this trade was closed yesterday, the absolute return could be 10%. We keep this position open but shift the spread’s stop-loss level to 170 bpts.