Itaú BBA - Weekly FI LatAm Strategy: Stopping out of our 5Y TIIE receiver in Mexico

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Weekly FI LatAm Strategy: Stopping out of our 5Y TIIE receiver in Mexico

October 30, 2018

We now expect Banxico to hike 25 basis points on November 15th.

After yesterday’s sell-off, we are stopping out of our 5Y TIIE receiver (FX hedged) with a 62bps loss. We believe the level of interest rates is attractive, but we are not seeing any trigger in the short term that could cause rates to tighten.

 We now expect Banxico to hike 25 basis points on November 15th (next monetary policy decision). Despite the deceleration in headline inflation and core inflation practically unchanged in the first half of October, the Mexican peso is depreciating substantially due to the uncertainty on the new administration’s policy direction. The depreciation is likely to cause Banxico to hike and reinforce its hawkish message.

 The results of the Airport referendum, which ended yesterday, were in favor of cancelling the current project and, in turn, building two runways in Santa Lucia’s air base (including the rehabilitation of the current and Toluca airport) with 70% of the preferences. The participation in the referendum was significantly low (less than 1% of the registered voters). In a press conference, AMLO confirmed the cancelation of the current airport project. The results will shape Mexico’s near term and medium term outlook.

We are keeping our receivers in Brazil (87bps gain) and Colombia (21bps gain), as shown in table below.

 



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