EFTA01433271

Subject: [/] FX Trade idea: Time to buy USDJPY FVA? [C] From: Martin Zeman Date: Fri, 22 Sep 2017 07:57:40 -0400 To: "Paul Barrett ( Cc: Vahe Stepanian Stewart Oldfield Xavier Avila Joshua Shoshan Davide-A Sferrazza Classification: Confidential Good morning, Paul, Not sure you look at FVA stuff, but this one in USDJPY looks good to me. Martin fcid:[email protected] Trade Ideas Buy ly2y USDJPY FVA at 10.50% Current 2y Implied volatility is at 9.95% Rationale The USDJPY volatility curve has flattened and reduced over the past year: Implied volatility is around 10% for maturities between ly and 7y, is historically low and carries flat. Hence USDJPY provides interesting entry points to buy forward volatility EFTA01433271 Volatility of USDJPY long-dated forwards is extremely low, with changes in forward points often having opposite changes in spot (typical of carry trade dynamics). As a consequence, we view back-end volatility as trading at a premium Medium term vols (3y-5y) may therefore be more optimal points in the curve. Current ly2y forward implied is at multi-year lows and negative carry has substantially reduced making it an attractive part of the curve Finally, holding USDJPY volatility would historically been a good diversifier against tail risk Analysis Implied Volatility Curve vs past / Spot vol curve / 3m&6m realised volatility of the forward {cid:[email protected]} Forward Volatility Forward Starting Window ly 2y 3y 4y 5y Underlying Window ly 10.0% 10.0% 10.1% 10.2% 10.2% EFTA01433272 2y 10.1% 10.1% 10.2% 10.3% 10.5% 3y 10.3% 10.4% 10.6% 11.1% 4y 10.4% 10.8% 11.3% 11.9% 5y 11.0% 11.7% 12.3% 12.7% Volatility Carry EFTA01433273 Forward Starting Window ly 2y 3y 4y 5y Underlying Window ly -0.2% -0.1% -0.1% -0.1% -0.1% 2y -0.3% -0.2% -0.2% -0.3% -0.4% 3y -0.4% -0.4% -0.6% -1.0% EFTA01433274 4y -0.5% -0.8% -1.3% -1.8% 5y ly2y Forward Volatility is at the lows and so is vol carry {cid:[email protected]} {cid:[email protected]} Sources: Deutsche Bank, Bloomberg Finance L.P. Disclaimer: http://globalmarkets.db.com/new/content/3045.html EFTA01433275 {cid:[email protected]} Martin Zeman Director I Key Client Partners Deutsche Bank Wealth Management DB Securities Inc 345 Park Avenue, 10154-0004 New York, NY, USA Tel. Mobile Email KCP products and services are intended and available only for persons who are sophisticated institutional investors within the meaning of the FINRA Rule 4512(C)(3), and who are capable of evaluating the strategies, characteristics and investment risks of, and exercising independent judgment in evaluating, the ideas and products discussed herein. Trades and transactions are subject to relevant internal approvals of DBSI or its affiliates prior to execution, and the execution of any transaction or idea discussed herein is conditional on your becoming a client of Deutsche Bank. Key Client Partners (KCP) products, investment ideas and solutions and related matters discussed herein are provided for discussion purposes only, and strictly on a non-advisory basis. The KCP Americas desk does not provide investment advice. The information set forth herein is confidential and personal to you and is being presented for your information and for discussion purposes only. Any reproduction and/or redistribution thereof (in whole or in part) or disclosure of its content without our written consent is strictly forbidden. This communication does not create any legally binding obligation on the part of DBSI or any of its affiliates. EFTA01433276