Trading

06 - “Casado”

The ”casado” strategy aims to convert exposure from a fixed rate to a floating rate, matching government bonds and DI futures contracts (Bond + Future Spread).

The “casado” arose from the need of Brazilian banks to convert their exposure in fixed to floating rate bonds. For that to happen, both bonds were matched to "synthesize" a floating rate, in other words, to match fixed bonds with a DI futures contract.

There are two possible ways of achieving this matching: LTN “casada” and NTN-F “casada”.

The maturities of DI futures contracts matched with the ones of LTN (quarterly on January Cicles) and NTN-Fs (annually on January) are characterized by a high liquidity, intentionally.

• LTN “casada”

  LTN “casada” is combined by the purchase of an LTN and a DI futures contract. The difference between the LTN and the DI futures rate is measured in points(each point corresponds to one bp.

  The open interest is controlled separately for the LTN bond and the DI futures contract, after the trading.

  The quantity ratio is 100 DI futures contracts for a LTN round lot (10,000 bonds), once the value of DI Futures Contracts is R$ 100.000,00 at maturity and the LTNs worth R$ 1.000,00.

• NTN-F “casada”

  NTN-F is a fixed rate bond with interest coupons paid bi-annually. This changes one aspect of matched transactions: the quantity of DI futures contracts needs to be adjusted over time requiring daily management.

  When choosing on a matched NTN-F trade, many investors use DV01 equivalent to real (or BPV – basis point value) to determine the number of DI futures contracts required to achieve the correct ratio.

  This calculation is given by the multiplication of BPV of the NTN-F on 10,000 (round lot) and then the division of this result by BPV related to the DI Future of the same maturity.

  Apart from this adjustment to the quantity of DI futures contracts using BPV, the trading rationale for matched NTN-F bonds is the same as that of matched LTN bonds.

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