Deutche Bank

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REV: APRIL 26, 2005


Deutsche Bank: Finding Relative-Value Trades
It was the third week of August 2003, and Jamil Baz, head of Deutsche Bank’s Fixed Income Research Group, gathered his research group for a morning meeting. “So, what are the markets telling us today?” he asked the group. “Are there any trends or news for new trade ideas?” The Fixed Income Research Group that Baz led was Deutsche Bank’s internal research and development (R&D) department for fixed income instruments. Their mandate was to look for untapped value across bond markets and interest rate derivatives. Long-term-oriented research findings were presented to clients, whereas immediate opportunities were suggested as trades to internal traders as well as clients. The success of the group was in part measured by how many of their trade suggestions actually turned into successful trades. So far, they had achieved an impressive 75% success rate. A natural place to start looking for new trades was the latest prices on various U.S. Treasury bonds (see Exhibit 1 for data from August 15, 2003). The group’s members consistently went through that data set, looking for possible trades to recommend. Typically relative-value trades took both long and short positions across different parts of the yield curve. Baz’s standard weekly question just emphasized what they all knew: that it was time to scour through the numbers one more time to see if any such positions were available.

The Deutsche Bank Fixed Income Research Group
Headquartered in Deutsche Bank’s London office, the company’s Fixed Income Research Group consisted of about 50 analysts and strategists. (An additional 10 were located in the bank’s New York offices.) Global head of Fixed Income Research and in charge of the group was Baz, a managing director with Deutsche Bank since 2001. Previously at Lehman Brothers in London, Baz also held an M.S. in management from MIT and a Ph.D. in business economics from Harvard University. As a part of a large financial institution, the research group was under constant pressure to monetize the ideas that they generated. The group presented its findings both internally to the ________________________________________________________________________________________________________________ Professors George Chacko and Peter Hecht, Executive Director of the HBS Europe Research Center Vincent Dessain, and Research Associate Anders Sjöman prepared this case. This case deals with trade-specific advice activities of a research department and draws heavily from “Deutsche Bank: Discussing the Equity Risk Premium,“ HBS Case No. 205-040, by the same authors. Case No. 205-040 deals with macro-level advice from the same research department. Some names and data have been disguised for confidentiality. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. This case is not intended as financial advice, and it should not be used as the basis for any investment decision, in whole or in part. Copyright © 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.


Deutsche Bank: Finding Relative-Value Trades

Deutsche Bank traders, as well as externally to Deutsche Bank clients at the CEO, CFO, and Treasury level. Baz explained how the ideas were pitched: The final goal is to create a franchise with fixed income clients. So, for clients on the...
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