BoJ Neutral Rate Payer Ladders Strategy

SG recommends a costless 6m2y TONA payer ladder to profit from a gradual rise in Japanese interest rates ahead of the April BoJ meeting. The trade structure exploits high implied volatility to fund upside exposure.

Key Takeaways

• 1.The market expects a BoJ rate hike in April, but there is potential for terminal rate pricing to drift higher towards 2.0% from current levels (~1.72%).
• 2.The recommended trade is a 6m2y JPY TONA payer ladder for zero cost to capture gradual upside while mitigating cost through high implied volatility.
• 3.The strategy carries unlimited downside risk if interest rates reprice significantly higher beyond the top strike of the ladder.

Table of Contents

• Rationale
• Expression
• Risks
• APPENDIX
• ANALYST CERTIFICATION
• MAD2MAR DISCLAIMER
• CONFLICTS OF INTEREST
• Important Notice
• Other Material Conflicts
• Important Disclaimers

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