We are taking profits on the trade with a 15bps gain.
We have no position in Brazil’s rates today, amid uncertainties towards the pension reform discussion
We prefer to be on the sidelines for now, as this long process of the reform in Congress involves significant risk
We stepped out of our receiver at the long-end of real rates last Wednesday with a 29bps gain
We are tactically stepping out of our receiver position in Brazil’s NTN-B 2050 at 4.51% (reference price), taking profits after a 29bps gain
We continue receive the NTN-B 2050 real rate in Brazil, as central banks in Brazil and Mexico are set to stay on hold this week.
We forecast 100bps in hikes in Chile and 50bps in Colombia this year.
In the Lower House, the reelection of Rodrigo Maia is, according to local news (Valor, Estado), the likely outcome
The real rate of Brazil’s long-term bonds can decline to 4.0% (or below) if the pension reform is approved.
We continue to receive the NTN-B 2050 real rate (now at 4.59%).
Approval of the pension reform will be an important trigger for lower long-term rates.
The Brazilian market is becoming more constructive on the reform agenda.
We recommend receiving NTN-B 2050 at 4.84%.
The BCB will likely keep the SELIC rate at 6.5% and indicate that the balance of risks has again become symmetric
We expect the Chilean central bank to keep the policy rate stable at 2.75%, while the market is divided between stability and a 25bps hike.
This is a key week for Emerging Markets, as a trade truce between U.S. and China may reduce risks to the global economy
Signs of improvement in the global scenario for EMs have been benefitting Brazil, Colombia and Chile.
The post-election scenario is generally seen as positive.
We expect Banxico (Thu.) to hike by 25bps to 8.0%, and do not rule out a 50bps increase
We recommend taking profits on our receiver position in Brazil.
Our DI Jan 21 receiver currently posts a 100bps gain, and we are keeping it for now.
We now expect Banxico to hike 25 basis points on November 15th.
We continue to receive local rates in Brazil.
We are keeping our receivers in Brazil, despite acknowledging that there may be less upside now.
We believe the belly (specifically Jan 21) is the best part of the curve to receive
We recommend receiving DI Jan 21 outright.
We continue to receive local rates in Mexico and Colombia.
We expect Banrep to keep the policy rate stable at 4.25%.
Prices in the front-end of the yield curve imply a 14bps hike in this meeting, and substantial monetary policy tightening after the elections
We have no position in Brazilian local rates today, due to domestic uncertainties
Trump’s decision on tariffs against China will be the highlight of the week.
We have no position in Brazilian local rates since the end of June, because of the domestic uncertainties
Keep an eye on global trade negotiations this week
Receiving the front-end of local rates in Brazil seems interesting again.
We continue to receive local rates in Mexico and Colombia.
We continue to receive Mexican 5y local rates, with FX hedge
The main risk for a receiver position is, in our view, the global trade war, which requires some protection by hedging FX
MXN has been appreciating substantially, but local rates have not followed the same path.
We expect the Selic rate to remain stable in upcoming meetings.
According to a quick count, AMLO received a higher share of votes than expected
Our base-case remains that BCB will keep rates stable in upcoming meetings, and the yield curve pricing still implies rate hikes.
The decline in rates caused gains to our received position in DI Oct-18 (+0.08%, unleveraged).
We believe BCB will keep the Selic rate stable this week
We believe BCB will keep the Selic rate stable this week
Keep an eye on the Fed meeting, and the behavior of Latam currencies this week.
The pricing of local rates in Mexico seems excessive, but now is not the right time to receive.
We will receive Mexican rates if/when a Nafta deal is announced.
We will step out tactically, but continue to monitor the trade, and receive again if a NAFTA deal is announced
We expect Brazil’s central bank to cut rates, and Mexico’s to stay on hold.
Argentina remains vulnerable to tightening global financial conditions.
We are stepping out of our position long Argentina’s CDS against the Latam average
Colombia reduces its policy rate by 25bps unanimously, as Argentina sharply hikes its policy rate by 300bps
We expect Banrep to cut the policy rate this Friday, with some debate about stronger easing.
We are receiving outright 3y TIIE rates at 7.37 for Mexico
Will believe Mexican rates will normalize ahead as inflation declines.
We expect the Central Bank of Mexico to stay put, while the Argentine is expected to hike the 7-day repo rate by 50-bps.
This week in Brazil, keep an eye on the political news flow and economic activity data
We continue to receive Brazil DI Jan 21, because we believe a wide output gap will maintain inflation well contained
We are stepping out of a short position in Colombian CDS
We continue to be received in the belly of the local rates curve in Brazil and the front-end in Colombia.
Stay received in the belly of Brazil and front-end of Colombia local rates
We will maintain our DI Jan21 receivers because we think the yield curve is still too steep.
Brazil’s DI yield curve flattened substantially on Friday after (CMN) decided to revoke resolution 4.444 from 2015.
In this report, we describe the federal debt and exchange rate markets in detail, providing a reference guide for investors.
We recommend paying the 1-year rate at 8.08% and receiving the 3-year rate at 7.89%, DV01 neutral
We hold a receiver in the belly of the Brazilian curve in order to profit from the sizable premium still embedded in it.
Despite the board’s hawkish message, we see room for additional easing ahead.
We recommend receiving DI Jan21 at 8.78%.
The fiscal challenge, a wide current account deficit and less favorable financial conditions will pressure Colombia’s CDS.
We believe the yield curve pricing is now fair, and therefore we are taking profits on the trade.
We believe markets will price in higher chances that Colombia will lose its investment grade; buy protection in 5y CDS.
After the result of the mid-term elections, Argentinian government is pushing for reforms to achieve fiscal consolidation.
We believe that the difference between Argentina’s 5y CDS spread (239bps) and the average of Latam ex-Argentina (102bps) will continue to narrow going forward.
We are received in the 18-month IBR swap; the trade is performing well so far and we expect it to improve further ahead.
The slow adjustment of Colombia’s current account deficit renders the COP the most vulnerable LatAm currency to a re-pricing of core yields.
We expect a pause in Banrep’s easing cycle, but there are risks of a more front-loaded cycle.
We recommend receiving the 18-month IBR rate, at 4.87%.
Barring a shock, we see room for the Brazilian nominal curve to flatten ahead.
We describe in detail the Brazilian federal debt and exchange rate markets, shedding light on their idiosyncrasies.
We see limited room for further compressing of Mexican yields, given the fiscal impact of the oil rout.
The more challenging fiscal scenario keeps Brazilian yields at a standstill.
Overcrowding exacerbated the impact of recent news, as players were anticipating a rally if the pension reform was approved in the House in the short term.
MXN outperformed on the positive global landscape; BRL showed resiliency to the negative domestic news
Negative domestic news prompted players to take profits in Brazilian rates, but we see room for further compression
We hold a structurally bullish view on Brazilian rates even though our tools show little mispricing at current prices.
The adjustment of Brazilian external accounts in 2016 and the ongoing fiscal reforms contrast with uncertainties on other EMs.
After a string of positive recent events the market started to price-in an acceleration in the easing cycle.
The recent sell-off in Brazil seems exaggerated to us, as the domestic story for local rates remains positive.
Our analysis indicates that non-economic factors have played a role in the performance of the MXN, the Cop and the BRL.
LatAm currencies are being quoted in line with our estimates, except the MXN which is still oversold
The rally in the Brazilian rates took a breather, but inflation expectations have reacted to BCB’s guidance
The uncertainties over global growth triggered by the Brexit have pushed down DM and LatAm yields alike.
The BRL is trading near our model’s estimate, but our numbers indicate that the MXN is oversold.
LatAm FX is matched with our estimates; we see some mispricing in short Mexican yields and on Colombian breakevens
We investigate how shocks to expectations affect the Brazilian curve, which inverted in March - edging closer to our scenario.
After a bumpy start of the year, local FX appreciated again; we analyze MXN returns from technical and econometric perspectives.
In FX, the highlight was the hefty depreciation of the MXN; in rates, Colombia’s risk premium increase
Given the turmoil at the start of the year, LatAm FX depreciated earlier than expected.
The heightened (domestic and external) uncertainty warrants defensive positions
Our fair-value models were pointing to short-term “richness” in most Latam currencies
We maintain a conservative approach as the market isn’t convinced about the speed of the U.S. rate normalization process ahead
Since we view the current “carry-appetite” in global markets as temporary, this recent rally created some opportunities.
In Brazilian rates, we recommend an underweight position, in search for entry points to re-load steepeners and payers.
However partly anticipated, upcoming rate normalization in U.S. may further strengthen the USD and pressure higher U.S. yields.
The expected process of monetary policy normalization in the U.S. will add pressure on Latam FX and yields ahead.
We are recommeding steepeners in Brazil and Mexico.
In Latam rates, the front-end shows the monetary policy outlook fairly priced, whereas for the back-end we see upward pressures ahead
Latam FX and rates rallied over a month’s time, powered by a better sentiment
Fair value models confirm that BRL and COP are the most vulnerable pairs (to US rate hikes) in Latam
In Latam, not only currencies continued to weaken, but also yields started moving higher