Hedge Funds Make Bullish CAD/JPY Plays

Hedge funds have been taking short-term bullish positions on the Canadian dollar versus the yen through vanilla calls over the last few weeks, according to strategists at Société Générale.

  • 26 Apr 2011
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Hedge funds have been taking short-term bullish positions on the Canadian dollar versus the yen through vanilla calls over the last few weeks, according to strategists at Société Générale.

One fund bought USD 50 million in notional in calls on the Canadian dollar with strikes at 90.00 and maturing April 20. Another fund took the same view but with an April 27 maturity, with an undetermined notional. The cross did not break CAD90.00 on April 20 and was at CAD85.88 at press time. One week implied volatility on the pair was at 7.995%, while two week implied volatility was at 8.270% at press time.

Many of the options are maturing this week and SocGen is recommending players take a two-month call spread on the cross with strikes at 89.50 and 92.50 by selling 2.5 times the notional on the higher strike relative to buying the lower strike.

One strategist in Paris speculated the funds traded vanillas instead of spreads because bid/offer spreads on crosses with limited liquidity like CAD/JPY are wide, meaning that selling the top side strikes only finances a small amount of the call premium, unless the funds are willing to take on more risk, as SocGen suggests.

SocGen recommended the trade on the back of their belief that CAD will strengthen due to continuing investment expenditure and employment growth. Strategists also view CAD as likely to be used as a hedge against inflation in Asia. With respect to the yen, the firm expects the Bank of Japan to expand its asset purchasing program to support new issuance of government bonds, which will in turn increase liquidity and offset repatriation flows, resulting in a weaker yen.

The identities of the funds driving the trades could not be gleaned.

  • 26 Apr 2011

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
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1 Citi 356,356.29 1337 9.08%
2 JPMorgan 317,952.80 1443 8.10%
3 Bank of America Merrill Lynch 316,523.82 1098 8.06%
4 Goldman Sachs 235,165.28 784 5.99%
5 Barclays 229,116.44 888 5.84%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 34,411.72 162 6.58%
2 Deutsche Bank 34,293.84 117 6.56%
3 Bank of America Merrill Lynch 31,113.25 94 5.95%
4 BNP Paribas 27,578.61 168 5.27%
5 SG Corporate & Investment Banking 23,982.83 136 4.59%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 19,536.02 78 8.84%
2 Morgan Stanley 16,323.54 83 7.38%
3 Citi 15,946.50 94 7.21%
4 UBS 15,404.75 59 6.97%
5 Goldman Sachs 13,695.77 74 6.19%