​Weekly: TLT Trades Eyed On China Fx Concerns; OIS EQD Discounting Increasing

August is typically the height of the summer lull, but China at least is keeping everyone on their toes, with its unexpected fx regime change earlier this week that saw a sudden 4.4% decrease to its onshore currency. The unexpected move injected some short term vol into global equity markets. Citi this week suggested investors should look at entering put spreads on the iShares 20+ Year Treasury Bond exchange-traded fund in a bid to hedge against implications of the China renminbi regime change. In other coverage this week, market participants are continuing to move away from Libor to value derivative cashflows and are instead using OIS discounting, with the trend increasing at the fastest rate in equity derivatives and foreign exchange derivatives last year, while the steep term structure in the VIX and the benefit of unlimited upside is making calendar call spreads attractive as a tail hedge as opposed to VIX call spreads.