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Extraction Summary
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Financial research report / strategy document
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Summary
This document is page 21 of a 'Global Cross Asset Strategy' report produced by Bank of America Merrill Lynch on November 30, 2016. It analyzes market volatility following Brexit and the US presidential election, noting that volatility remained lower than expected. The text outlines specific hedging strategies the bank is employing, including Eurostoxx put spreads regarding the Italian referendum and closing a position on China risk. The document bears the Bates stamp 'HOUSE_OVERSIGHT_014452', indicating it was part of a document production for a congressional investigation.
People (1)
| Name | Role | Context |
|---|---|---|
| Donald Trump | US President-elect |
Mentioned in chart title 'Chart 41: Neither the Trump election...'
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Organizations (5)
| Name | Type | Context |
|---|---|---|
| Bank of America Merrill Lynch |
Creator of the report (logo and footer)
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| Bloomberg |
Cited as source for charts
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| Datastream |
Cited as source for Chart 40
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| IBES |
Cited as source for Chart 40
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| House Oversight Committee |
Implied by Bates stamp 'HOUSE_OVERSIGHT'
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Timeline (3 events)
Key Quotes (3)
"While 2016 started off with a bang volatility wise it has ended with a whimper."Source
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Quote #1
"Neither Brexit nor the US presidential election proved to be anything more than a blip."Source
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"We are happy to continue to run these trades into 2017 and then use shorter term instruments to hedge specific events."Source
HOUSE_OVERSIGHT_014452.jpg
Quote #3
Full Extracted Text
Complete text extracted from the document (2,172 characters)
Chart 40: European AT1s offer a compelling yield for total return investors
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Stoxx Banks 12m fwd DY (%)
Coco Index yield (%)
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Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, IBES
Volatility: Sticking with Relative trades
While 2016 started off with a bang volatility wise it has ended with a whimper. Neither Brexit nor the US presidential election proved to be anything more than a blip. Realised vol in the S&P 500 over the last 100 days is just 9.5%. That compares to 13.6% for the Eurostoxx 15.1% for the Russell and 21.8% for the NKY.
While 2016 started off with a bang volatility wise it has ended with a whimper. Neither Brexit nor the US presidential election proved to be anything more than a blip. Realised vol in the S&P 500 over the last 100 days is just 9.5%. That compares to 13.6% for the Eurostoxx 15.1% for the Russell and 21.8% for the NKY.
Chart 41: Neither the Trump election...
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VIX Index
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Source: Bloomberg
Chart 42: ...nor Brexit led to a sustained period of higher volatility
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Source: Bloomberg
That is why we prefer relative variance trades. They tend to carry flat to positive but have convexity to the downside. We are happy to continue to run these trades into 2017 and then use shorter term instruments to hedge specific events.
We did this around Brexit and have recently bought a 3000-2850 Eurostoxx put spread to hedge our European exposure around the Italian referendum. While a No vote is expected we are not sure what the aftermath will look like and there is considerable uncertainty over the bank recapitalization of the banks afterwards.
We also have a calendar put spread in eurostoxx which tends to pay off best around the 2500-2600 levels so that remains something that we will look to keep for now given downside risks in Europe over the first half of next year.
One trade we are taking off today is our Kospi forward vol position. We had held that as a hedge against a China hard landing. Our derivative strategists no longer like it and we have no opted for a currency hedge for our China risk, as discussed above.
Bank of America
Merrill Lynch
Merrill Lynch
Global Cross Asset Strategy – Year Ahead | 30 November 2016 21
HOUSE_OVERSIGHT_014452
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