Itaú BBA - LatAm yields narrow in tandem with US treasuries

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LatAm yields narrow in tandem with US treasuries

October 11, 2017

LatAm yields narrowed on the back of stronger currencies and in tandem with US treasuries.

With information available until 6:30pm Brasilia time
 

Highlights

  • LatAm yields narrowed on the back of stronger currencies and in tandem with US treasuries. Short DI futures decreased 2bps, on average, whereas back end inched up due to the LTN and NTN-F auctions. In Mexico, the belly and the long end went up roughly 6bps. In Chile, the 1-year fell 4bps to 2.44%. In Colombia, rates also decreased, with the front end and the belly falling 1-2bps.
     

  • On a weak USD day (DXY: -0.34%), LatAm FX posted gains (+0.34%). The MXN outperformed its peers, trading at 18.7119/USD (+0.62%). Ahead of the holiday in Brazil, the BRL closed at 3.1730/USD (+0.23%). The CLP posted gains (+0.35% to 627.03/USD) on the back of rising copper prices (+1.09%) and the COP was stable at 2,954/USD (+0.02%). 

Macro Backdrop

BRAZIL
  • Itaú Unibanco monthly GDP is stable in August. Compared to one year earlier, the indicator climbed 3.9%, marking a sixth consecutive month in positive territory under this metric. In the quarter through August, it went up 0.9% qoq/sa. Although PIBIU is still low when compared to previous years, figures for 2017 show that economic activity is gradually recovering in Brazil. The rebound is already seen in several segments of the manufacturing and retail sectors, and in the labor market as well. The seasonally-adjusted stability of the indicator during the month is consistent with its diffusion. Six out of ten PIBIU components posted gains in August, led by industrial public services and agriculture and livestock production, up by 1.1% and 0.8%, respectively. On the other end, mining and extraction fell the most during the month, by 0.9%. Preliminary figures for September suggest an increase in PIBIU, as well as positive growth in 3Q17 in seasonally-adjusted terms. Full Report

  • Retail sales: a (temporary) pause during the rebound. Core retail sales dropped 0.5% mom/sa in August, below our forecast and the median of market estimates (0.0% and 0.1%, respectively). Compared to August 2016, core sales expanded 3.6%, marking a fifth consecutive gain after 24 months in negative territory. Likewise, broad retail sales rose 0.1% mom/sa, slightly below the median of market estimates (0.5%) and our call (0.4%). Compared to August 2016, broad retail sales climbed 5.7%.  Readings for the past two months for core and broad retail sales suggest stagnation, possibly reflecting a reversal of the temporary boost provided by withdrawals from inactive FGTS accounts. The quarterly change remains positive thanks to a strong result in June. In all, coincident indicators out so far suggest that broad retail sales will expand 0.6% mom/sa and core retail sales will climb 0.3% mom/sa in September. Full Report

Market Developments 
  • GLOBAL MARKETS: The USD weakened across the board and US treasuries didn´t react after the release of the FOMC minutes. The release came in line with the sign from the dots released on the meeting day – many Fed officials saw another hike warranted this year and just a few wanted hikes delayed until we reach a higher inflation. Global Markets Tracker

  • CURRENCIES & COMMODITIES: In Commodities, oil benchmarks pared daily gains (WTI: +0.18% to 51.32/USD). In the intraday, prices increased as OPEC compliance with output cuts rose to 97% in September, according to Bloomberg. However, later in the session, the weekly API report showed US crude stocks rose 3.1 million bbl last week. Metals were mixed once again, with copper up 1.09% and iron ore dropping 2.05%. On a weak USD day, LatAm FX posted gains (+0.34%). The MXN outperformed its peers, trading at 18.7119/USD (+0.62%). Ahead of the holiday in Brazil, the BRL closed at 3.1730/USD (+0.23%). The CLP posted gains (+0.35% to 627.03/USD) on the back of rising copper prices (+1.09%) and the COP was stable at 2,954/USD (+0.02%). FX & Commodities Tracker

  • CDS SPREADS & EXTERNAL BONDS: LatAm credit spreads (5-year) narrowed as the external scenario improved. In Brazil, CDS fell 3bps to 184bps. In Mexico and Chile, both spreads inched down 1bp to 111bps and 56bps, respectively. Finally, Colombian country risk was stable at 117bps. External Bonds and CDS Tracker

  • LOCAL RATES – Brazil: Short Brazilian rates fell on the back of a stronger BRL. In DI futures, while the front end and the belly decreased 2bps in average (Jan-19:-2bps to 7.29%), the back end inched up (Jan-25: +4bps to 9.98%) on the back of the LTN (Oct-18, Oct-19 and Jul-21) and NTN-F (Jan-23 and Jan-27) auctions. Brazil Rates Tracker

  • LOCAL RATES - Mexico: Mexican rates narrowed on falling US treasuries. The TIIE swaps curve flattened, as very short rates were unchanged (6-month at 7.37%) and longer ones narrowed 6bps on average (5-year: -5bps to 7.02%). Mexico Rates Tracker

  • LOCAL RATES – Chile and Colombia: In Chile, yields further narrowed, on a better external scenario. The 1-year fell 4bps to 2.44%. Chile Rates Tracker In Colombia, rates also decreased, with the front end and the belly falling 1-2bps and the long end broadly stable. The 1-year IBR swap decreased 2bps to 4.76%. Colombia Rates Tracker

Upcoming Events

  • In Mexico, INEGI will publish August’s industrial production (Thu.). We estimate that industrial production fell by 0.6% year-over-year. Furthermore, Banxico will publish the minutes of the latest monetary policy meeting (Thu.). 

  • In Colombia, Banrep will publish the minutes of the September monetary policy meeting (Fri.). The minutes will likely express that the real interest rate is now near to neutral and any additional easing would likely come only once inflation resumes a downward trajectory towards the 3% target. 

  • In Argentina, the INDEC will publish the National CPI for September (Thu.). According to private estimates, headline inflation decelerated to 1.3% month over month in September, while the core measure stood at 1.4% mom. 

For details, refer to our Monthly Strategy Report.

For details on Brazilian markets, refer to our Handbook - First edition.

Today's editors: Eduardo Marza, Pedro Correa




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