Itaú BBA - Weekly Fixed Income LatAm Strategy: Colombia to resume easing

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Weekly Fixed Income LatAm Strategy: Colombia to resume easing

April 23, 2018

We expect Banrep to cut the policy rate this Friday, with some debate about stronger easing.

COLOMBIA: We expect Banrep to cut the policy rate by 25bps to 4.25% this week (Fri.), with some debate about stronger easing and maybe a part of the board voting for a wider 50bps cut. The front-end of IBR rates remained broadly stable last week, with the market pricing 40bps in cuts over the next 3 months. 

We will maintain our receiver position on the 18-month IBR rate, which now posts a +0.49% return.

ARGENTINA: This week, keep an eye on the central bank’s biweekly monetary policy meeting to decide on the reference rate (Tue). We expect rates unchanged.

After April’s surprise, inflation trend is being carefully watched. Last week, Central Bank Governor Federico Sturzenegger affirmed he believes the recent inflationary spike is temporary though, in case of escalating prices, the reference rate – currently at 27.25% - will rise. Furthermore, Sturzenegger pointed out the central bank’s interventions in the exchange market may go on, as a continued depreciation of the ARS isn’t justified by real shocks or the planned path for the reference rate. 

MEXICO: Local rates widened last week, following MXN depreciation. The market likely reacted to the polls showing AMLO has widened his lead against all other candidates, which increases the chance of his party gaining participation in the Lower House.

The widening of rates caused losses to our outright receiver on the 3y local rates (current P&L: -0.39%). We will maintain the position (3y rate now at 7.51%), as we expect NAFTA renegotiation to be concluded soon, reducing one of the main structural risks to the Mexican economy, and rates to normalize ahead as disinflation gains traction.

This week, keep an eye on CPI inflation figures for the first half of April (Tue) and Banxico’s monetary policy minutes of the last board meeting (Thu).

BRAZIL:April’s IPCA-15 came in slightly below market estimates at 0.21% on Friday, which triggered some receiving in the local rates curve. Even with a shaky external scenario and BRL under pressure, local yields were able to tighten.

After a good performance receiving rates in the belly of the curve, we have no position in Brazil today, because of rising uncertanties surrounding the election scenario.


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