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Reverse Convertible on the 3-Month USD LIBOR

USD interest rate volatility remains high due to the US-China trade war escalation and the uncertain macro-economic outlook.


JB Research postpone their recession forecast for the US by 1 year to 2021.


Thus our economists expect the federal funds target rate corridor in Q4 2020 to be higher at 1.50% - 1.75%, whereas the market expects 3-month USD LIBOR in August 2020 at 1.32% (current 3-Month USD LIBOR @2.12%).


Investors who share this view and believe the 3-month USD LIBOR rate will not drop below 0.81% (indicative) at the end of the product term (1Y) may benefit from the current high volatility with a reverse convertible.


Attractive coupon of 7.50% p.a. considering the low strike of 38%, equivalent to a 3-Month USD Libor level of 0.81% (indicative)
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