Reflecting on events
1. What happened in the event?
2. What situational factors contributed to the event happening the way it did?
3. Why did I respond the way I did?
4. Did the situational factors influence my response?
5. What were the consequences of my actions for me, my colleagues, the organisation, and my
family?
6. Were my actions aligned to the organisation’s values? My own values?
7. What do my actions reveal about my values?
8. Did I act for the best?
9. Were the actions of others aligned to the organisation’s values?
10. How did I respond to their actions?
11. Why did I respond this way?
12. Has this changed the way I will do things in the future?
Course: Markets Sales & Trading
Citi is a leading global investment bank offering a wide variety of roles across its different
divisions. During this program, you will have the opportunity to experience life on two different
desks on the trading floor and complete tasks that mimic the work that our sales and trading
teams do each day.
In this program, you'll learn to synthesize market news, formulate a market view and develop
trade ideas to profit from this view as well as hedge risk. We hope this program serves as a
valuable resource for you to gain new skills while strengthening your resume as you explore
career options and a potential career here at Citi!
Task 1: Prepare for the morning meeting
Gather information on overnight moves and preview the upcoming FOMC meeting
● Use resources to review overnight economic events focusing on USD rate movements
● Review key economic data and market consensus for the FOMC meeting
● Write a 2-3 paragraph summary for an internal sales meeting
Task 2: Wrap up the week
● Synthesize sources to summarize the week and develop a market view
Summarize the week's market moves with a focus on USD rates
● Recap the FOMC meeting and its impact on markets using provided resources
● Compile a professional email for both your internal team and external clients
Task 3: Pitch a trade
Demonstrate your understanding of rates products by writing up a trade idea
● Choose a potential trade from a provided set of options and justify its profitability
● Draft a concise client-ready write-up explaining your trade idea
Task 4: Hedge risk
Demonstrate an understanding of the market risk associated with trades
● Analyze the risk involved in the client trades assigned to you
● Select a hedge for each trade, justify your choice, and provide reasons for discarding
other potential hedges
Course: Investment Banking
Citi is a leading global investment bank offering a wide variety of roles across its different
divisions. During this program, you will have the opportunity to experience life on two different
desks on the trading floor and complete tasks that mimic the work that our sales and trading
teams do each day.
In this program, you'll learn to synthesize market news, formulate a market view and develop
trade ideas to profit from this view as well as hedge risk. We hope this program serves as a
valuable resource for you to gain new skills while strengthening your resume as you explore
career options and a potential career here at Citi!
Task 1: M&A Target Company Profile
● Identify a public corporation to be acquired and build out a company profile page
● Use the information provided on Best Buy to create a company profile in PowerPoint
Task 2: Financial Modeling Basics
● Project a company’s financials by building a simple financial mode
● Use a simple income statement model to build your forecast in Excel
● Develop a five-year financial projection
Task 3: Spreading Comps (short for comparables)
● Build a trading comparable model to depict where the target company’s valuation is
positioned relative to its peers
● Draft a comparative company analysis on Best Buy
● Use the provided information and conduct additional research to find the right financial
data
Task 4: Synthesize Key Findings
● Analyze the valuation information to give a summary of the main ideas
● Read Best Buy's 2022 investor update
● Synthesize the key findings in an informal summary report for your boss
This summary covers both overnight recap and economic setting. In this FOMC meeting, we will
focus primarily on USD rates. From January 2021 to September 2021, the USD experienced
notable fluctuations and trends in the foreign exchange markets. The USD exhibited strength
against several major currencies due to several factors, including concerns over rising COVID-
19 cases, the potential impact on global economic recovery, and expectations of a shift in
monetary policy.
During the period from January 2021 to September 2021, inflation and 10-year Treasury bill (T-
bill) yields were important factors impacting the financial markets and the USD. In recent
months, it can be observed that inflation showed an overall increasing trend Inflation rates rose
from 1.39% in January to 4.04% in September, reaching a peak of 4.45% in June. These higher
inflation levels indicate ongoing inflationary pressures in the US economy during this period. As
for the 10-year T-bill yields in 2021, it can be observed that yields fluctuated throughout the year
but remained relatively low. The overall trend suggests that investors were willing to accept
lower returns on 10-year T-bills during this period.
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Today’s highlight will, of course, be the September FOMC meeting. Given the relatively weak
August jobs data and inflation having subsided slightly in recent months, the market consensus is
that there will not be any policy changes at the meeting itself [A1] . However, the meeting will
still be an informative one as we are set to receive an updated dot plot and may also receive some
hints regarding the upcoming tapering.[A2]
In the most recent update to the dot plot in June, the median of the Fed’s forecasts was for no
hikes in 2022, followed by two in 2023 and terminal rates around 2.5%. Given inflation
remaining around 4%, despite continuing claims that this is only transitory, it seems very
unlikely that any of the Fed officials already calling for a hike in 2022 would remove their dots.
Hence, the risk is skewed to more dots appearing for a 2022 hike. However, given the market is
already pricing in a hike towards the end of 2022, this is unlikely to lead to a major sell-off[A3] .
Current market pricing still has the Fed on hold until 2023, with just one rate hike in 2023 and up
to two additional hikes in 2024.[A4]
With regards to tapering, as mentioned, given the weak employment data and the uncertainty
around the Delta variant, it is now looking unlikely that they will announce a start to tapering.
However, the market will be watching whether there are any updates to the previous signaling,
which had suggested that the tapering was likely to begin towards the end of this year. Any
information here will come from the press conference, as it is unlikely they will make any
meaningful changes to the wording of the statement itself.[A5]
In terms of overnight news, the moves were relatively muted. After an initial sell-off in risk
assets, markets traded risk-on overnight after Evergrande said it would pay some of its debt
payments which are due tomorrow. This, alongside an injection of 120 billion yuan, roughly $19
billion, by the Chinese Central Bank, reassured markets somewhat. Despite the news, the moves
in USD rates were pretty contained, 10-year treasuries traded a three basis point range, and
yields are currently back around 1.33 where we left them yesterday.[A6]
Example Answer Explanations
[A1] State the expectation regarding policy changes first, as this will always be the first thing
people are looking for from a central bank meeting.
[A2] Point out any additional things people will need to be aware of from the meeting.
[A3] Be specific about the changes you expect to see and how you think the market will react if
this does occur.
[A4] You want to be specific in terms of what the market currently is pricing. However, as this
is a verbal meeting, it is best to quantify this in a way that is easy to remember e.g., talking about
the time from for complete 25bp hikes being priced in.
[A5] Specify the potential changes in order of their relevance. For changes which aren’t as
obvious as a interest rate change, it is useful to specify how that information will be conveyed.
[A6] Short recap of the overnight moves as there wasn’t really any major moves. It is also
helpful to speak about events in terms of their impact on a liquid product so that people have
some context as to how important the moves are seen to be in the market. By using the U.S.
Treasuries as a reference this is particularly useful as most people in the room will care about
how relevant the news is for the U.S.
We would like to provide an overview regarding the US Treasury Notes and US Treasury Bonds.
These securities are issued by the US Government and are generally considered as a risk-free
asset, backed by the credit of the US Government. Generally, the price at which a bond is
purchased influences the yield received on the investment. In the case of US Treasuries, as bond
prices increase, yields decrease.
The outcome of the FOMC meeting had a significant impact on the US Treasuries market, with
bond yields experiencing notable changes. By staying informed, understanding market dynamics,
and consulting with our experts, you can navigate the US Treasuries market with confidence. We
would like to provide you with more information regarding the recent developments in the US
Treasury market, specifically related to the Federal Reserve's bond-buying program. On
September 22, the benchmark 10-year Treasury yield experienced volatility in response to the
Federal Reserve's announcement. The yield dropped 1.7 basis points to 1.307%, while the 30-
year Treasury bond yield fell 3.5 basis points to 1.822%. This movement in yields reflects the
market's reaction to the Federal Reserve's indication that it may soon curtail its asset purchase
program, which has been in place for over a year.
Besides, the Federal Reserve's decisions and communications regarding its bond-buying program
have a significant impact on the bond market, including US Treasuries. To be more specific, the
Federal Reserve, in its post-meeting statement, noted that the economic progress made since the
depths of the pandemic could allow for a reduction in its market support in the coming months.
The central bank suggested that a moderation in the pace of asset purchases may be warranted if
progress continues as expected. The Fed's bond-buying program, also known as quantitative
easing, could potentially conclude by the middle of 2022.
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Markets started the week off wobbly on Monday with worries that the Chinese property
developer Evergrande could collapse with potential repercussions extending beyond China.
While confidence was somewhat regained on Wednesday with Evergrande having agreed to
meet some of their interest payments to Chinese investors due on Thursday, there has been no
information as to whether they will make payment on their U.S. dollar bond, and thus the
potential risks here clearly remain.[A1]
In domestic news, the highlight of the week was the September FOMC meeting. While no policy
changes were announced[A2] , as expected, Powell confirmed that we remain on track for
tapering by the end of this year strongly signaling that absent surprises they may start scaling
back purchases in November with an aim of completing the process by mid-2022. The updated
dot plot also had the median forecast for a hike in 2022, and we got our first look at the dots for
2024, with the median expectation being for another three hikes. Despite a relatively muted
response on the day of the meeting, U.S. rates markets sold off into the end of the week. 10-year
Treasury yields closed the week at 1.46%, up 15 basis points from the NY open on
Monday[A3] . Flows were relatively light in the lead up to the meeting, though we saw some
paying of IRS and selling of UST in 10y and beyond by fast money accounts. Post meeting, we
saw real money clients receiving rates to fade the sell-off, while fast money accounts were
generally paying. This was particularly pronounced in the front end with significant interest in
paying one year and shorter, positioning for a potential move to earlier hikes. [A4]
Given there is only one hike priced in by the end of next year, we recommend paying interest
rates one year and under. While the unpredictability of COVID may mean that the Fed dots end
up getting pushed out again, downside risks are relatively limited. [A5] Meanwhile the potential
that inflation ends up not being transitory could see the Fed forced to start hiking faster and more
than currently priced in to avoid inflation expectations becoming entrenched. Expressions we
like are paying May FOMC and 1y IRS.
Market Pricing (as of 24-Sep-21)
FOMC Meeting Hikes Priced (bps)
Nov-21 0.5
Dec-21 1
Jan-22 2
Mar-22 5
May-22 6
Jun-22 10
Jul-22 12
Sep-22 17
Nov-22 20
Dec-22 25
Answer Explanation
[A1] Given there weren’t many major news stories mentioned other than the Fed, best to keep
the general recap section brief to highlight what has happened with the FOMC meeting.
[A2] Mention the headline policy change relative to market expectation just so that a reader can
quickly judge the significance.
[A3] Be very specific in quantifying moves given this is an email rather than a discussion in a
meeting.
[A4] Note that the flows are summarized quite generally to make sure we aren’t giving away
sensitive information. In particular, we have completely avoided talking about Central Bank
moves as they are particularly sensitive.
[A5] One characteristic that can make a trade attractive is the perceived risk-reward trade-off.
Given the current view and market pricing, it makes sense to highlight this aspect for the current
trade.
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Example Answer
Pay 3-month forward 1-year IRS
(Entry: X, Take Profit: Y, Stop: Z)
Despite inflation having decreased slightly to 4% from its 4.5% peak in June, it remains well
above the Fed’s 2% inflation target. While in the latest FOMC meeting, the Fed reiterated its
view that inflation is transitory[A1] , we view that the potential remains for inflation to prove
itself to be more entrenched than the Fed suggests, given the current supply-side constraints.
Hence, we believe that it is likely that they will be forced to hike rates sooner than they currently
expect[A2]. With the first hike not fully priced until the end of next year, risk is skewed toward
rates moving higher, given rates are currently near 0. While we do expect that any change in
view by the Fed will take some months, we believe that the 3-month forward start with a 1-year
tenor gives sufficient time for our view to play out[A3]. Given we have already seen hints that
several Fed officials disagree with Powell, the next 3-4 months should give enough time for
additional data to show whether inflation has, in fact, peaked or whether the supply disruptions,
labor shortages, and strong demand could see inflation stay well above target into 2022.
By keeping the short position only until December 2022, we avoid exposure to too much risk of
the market shifting to price out the currently expected hikes if for example a COVID surprise
leads to another downturn in activity over winter[A4]. Hence, we see the downside limited to
~10 basis points if the hike priced into December was pushed out with a potential upside of 25-
50 basis points if we see two to three hikes by September[A5].
While plenty of uncertainty remains with the potential for a new variant of COVID to once again
disrupt markets or contagion from the Evergrande saga to cause mayhem to markets outside of
China, we believe this trade offers great risk-reward given the relatively limited downside.
Market Pricing (as of 24-Sep-21)
FOMC Meeting Hikes Priced (bps)
Nov-21 0.5
Dec-21 1
Jan-22 2
Mar-22 5
May-22 6
Jun-22 10
Jul-22 12
Sep-22 17
Nov-22 20
Dec-22 25
[A1]Including current data helps clients better understand at what market prices your trade view
was based. This can be useful in evaluating whether the trade still makes sense at a later point.
Example Answer Explanation
[A1] Very brief statement of the current environment. While it is necessary to give context,
given the relevant audience would be well aware of these events and can easily look up specifics,
it doesn’t make sense to spend too long elaborating on it in a trade idea.
[A2] Early statement of the view, which underlies the trade idea.
[A3] Explanation of the reason this particular expression was chosen.
[A4] Brief analysis of potential risks + additional explanation of the specific trade chosen.
[A5] The potential downside and upside are quantified with the upside significantly larger than
the downside.
Table: Including current data helps clients better understand at what market prices your trade
view was based. This can be useful in evaluating whether the trade still makes sense at a later
point.
BlueFort paid 10-year outright USD interest rate swap (IRS):
● Risk: The risk of a sell-off in rates markets. If rates increase, the fixed leg of the IRS
becomes less valuable, resulting in potential losses.
● Inflation and FOMC Meetings: Not significant
● Hedge Choice: to buy 10-year Treasury Bond Futures on the exchange, leading to a
negative correlation with the client trade
Castleton received 1-year forward 1-year USD IRS:
● Risk: The possibility of changes in the shape of the yield curve and the spread between
short-term and long-term interest rates.
● Inflation and FOMC Meetings: possible based related situation with in 1 year
● Hedge Choice: to receive a 2-year USD IRS in equal size as a hedge leads to a position
that benefits from a decrease in rates or a flattening of the yield curve.
Internal USD rates options desk received March 22 FOMC:
● Risk: the impact on interest rates from the March 2022 FOMC meeting.
● Inflation and FOMC Meetings: the outcome of the March 2022 FOMC meeting and the
subsequent market reaction.
● Hedge Choice: to receive a March 22 FOMC swap, leading to a negative correlation with
the client trade.
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Example Answer
1. BlueFort paid 10y outright USD interest rate swap (IRS)
● This is an outright rates trade with the client paying the fixed rate. Hence, we are
receiving and thus long rates (i.e. we will lose money if interest rates increase (rates sell-
off)).
● Given this is a 10y trade, it is relatively long-term and not particularly exposed to
inflation bringing hikes forward. However, it would still lose money in the resulting sell-
off, and thus I would like to hedge the outright risk.
● I would sell 10-year Treasury Bond Futures on the exchange. These futures are liquid, so
I can quickly hedge without paying much of my bid-offer charge away. The tenor
roughly matches that of the client trade, and while I will have a mismatch in terms of
Bond Future vs. IRS intraday, this is less of a concern for me.
● Buying Futures or receiving swaps would be the wrong direction; these trades would be
positively correlated with the client risk (i.e. they will also lose money if interest rates
increase). Paying 5y USD IRS is the correct direction, but the tenor mismatch and the
lower liquidity of IRS makes this less desirable.
2. Castleton received 1year forward 1year USD IRS
● This is an outright trade with the client receiving the fixed rate. Hence, we are paying,
and thus short rates. Thus, we will make money if interest rates increase.
● This is a short-end trade, so it is quite exposed to changes in Fed policy. However, given
the forward start, this will only make money if rates are higher in 2024 than currently
expected.
● I would receive 1s2s IRS spread. Given that I expect rates to sell off driven by the Fed
being forced to hike more than expected in 2022, I would prefer to have the short rates
position brought in a little earlier than it is under the client trade.
● Receiving 2y USD IRS would be the correct direction but would leave me received in 1
year IRS against paying 2y IRS, this risk would perform badly under my view that
persistent inflation will cause the FOMC to move hikes forward. Meanwhile, March 22
FOMC is too short dated, so the correlation with the 1-year forward 1- year will be low,
and this hedge would expire well before the client trade does.
3. The internal USD rates options desk received March 22 FOMC
● I am paying the fixed rate, and thus short rates. Will lose money if the Fed hikes in
March.
● Given this is an FOMC meeting swap, which is coming up in the next few months, it is
very sensitive to Fed policy.
● I would leave this position unhedged. While I am not expecting the Fed to necessarily
change to hiking so soon, given how confident they are that inflation is transitory, there
seems to be little downside risk in the trade given that the market is currently pricing
almost nothing in. Hence, I could potentially make money if there is a surprise hike, but I
have very little to lose.
In the 2022 Investor Update, the company showcased several key findings and outlined its path
forward to delivering growth and value for stakeholders.
Firstly, the company achieved record revenue and profitability, demonstrating its strong financial
performance. Additionally, it focused on improving customer experience by driving online and
in-store Net Promoter Score (NPS) improvements. The company also displayed effective supply
chain management, successfully navigating challenges and achieving the fastest-ever package
delivery speeds.
Another notable development was the launch of a bold new membership program, which is
expected to enhance customer loyalty and drive long-term growth. The company also
experimented with multiple store formats to optimize its retail presence.
In terms of investments, the company prioritized its employees by investing in pay and benefits,
emphasizing its commitment to a positive work environment.
Financially, the company reported impressive figures, with 10.4% year-over-year comparable
sales growth, a 30.8% increase in non-GAAP return on investment (ROI), and a 110 basis point
expansion in non-GAAP operating income rate compared to the previous fiscal year. Share
repurchases and dividends amounted to $4.2 billion, and non-GAAP earnings per share (EPS)
grew by 27% year-over-year.
Furthermore, the company demonstrated its commitment to environmental sustainability and
community engagement. It pledged to spend $1.2 billion with BIPOC (Black, Indigenous, and
People of Color) businesses by 2025 and expand Teen Tech programs. Best Buy also aimed to
drive the circular economy, become carbon neutral by 2040, and actively promoted recycling
initiatives, having collected over 192 million pounds of consumer products for recycling in 2021.
Overall, the company's strategic initiatives focus on driving growth through improved customer
experience, innovation in store formats, employee investments, and a strong commitment to
environmental and community sustainability.
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The company has expressed its plan to grow by expanding into new product categories such as
fitness and wellness, personal electronic transportation, and outdoor living. Its fitness and
wellness push is being driven largely by an attractive total addressable market (TAM) size,
which is valued at over $25 billion annually, as well as the macro backdrop of an aging U.S.
population and continuous improvements being made to digital health devices.
Next, the company has defined the category of “personal electronic transportation” which
includes e-bikes, scooters, mopeds, dirt bikes, skateboards, and go-karts, and will allow the
company to capture share in a $3 billion market niche as well as add unique and exciting new in-
store merchandise to drive foot traffic in its over 900 domestic stores.
Finally, outdoor living represents a $30 billion market opportunity. The company’s commitment
to the space is highlighted through its 2021 acquisition of Yardbird, a leading premium outdoor
furniture company. In sum, these three growth areas allow the company to provide its customers
with more options while enhancing and diversifying its existing portfolio, and delivering upon its
purpose of enriching lives through technology.