Itaú BBA - Weekly Fixed Income LatAm Strategy: Colombian CPI and Banxico on hold benefit our receivers

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Weekly Fixed Income LatAm Strategy: Colombian CPI and Banxico on hold benefit our receivers

August 6, 2018

We continue to receive local rates in Mexico and Colombia.

MEXICO: Banxico kept the policy rate stable at 7.75% last week, causing market rates to decline by around 10bps. The no-move was in line with our call and benefited our receiver position in the 5y local rate, as the market was pricing in some probability of a hike and adjusted to the decision.

This week keep an eye on July’s CPI (Thu.), for which we expect a 0.31% gain, taking the twelve-month reading to 4.57% (4.65% in June).

COLOMBIA: Lower-than-expected inflation underscores our view that there’s no need to increase interest rates for the time being. July’s CPI, out on Saturday, came in at -0.13% (mkt: +0.12%, our call: +0.05%), with food prices pushing the headline result downwards. Twelve-month inflation now stands at 3.1% (3.2% previously), close to the 3.0% target.

Our position received in the 1-year IBR rate currently posts a 16bps gain. The 1-year IBR rate is still running at 4.39%, against a spot IBR rate of 4.10%, which implies around 70bps in rate hikes starting early next year. We believe these levels are still attractive and will keep the position.

BRAZIL: Poll indicates higher voting intentions for Geraldo Alckmin (PSDB) in São Paulo. According to a poll conducted by Ibope, only in the state of São Paulo, in the scenario without Lula (PT), Geraldo Alckmin (PSDB) leads the presidential race with 19% of voting intentions (coming from 15% in the previous Ibope poll), followed by Jair Bolsonaro (PSL) with 16% (from 17%), Marina Silva (REDE) with 11% (from 13%), Ciro Gomes with 8% (from 6%), Fernando Haddad (PT) with 4% (from 3%) and Alvaro Dias (PODE) with 4% (from 2%). In this scenario, blanks, nulls and undecided represent 30% of the electorate. This poll hit the wires on Friday night with the market closed.

We have no position in Brazilian local rates today due to local uncertainties.

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