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Brazilian rates’ bull market is not over
LatAm Fixed Income Strategy Monthly March 17, 2017
Please refer to page 22 of this report for important disclosures, analyst certifications and additional information. Itaú BBA does and seeks to do business with Companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the sole factor in making their investment decision.
Itaú Corretora de Valores S.A. is the securities arm of Itaú Unibanco Group. Itaú BBA is a registered mark used by Itaú Corretora de Valores S.A.
Highlights
The noisy domestic news flow prompted some players to take profits
in Brazilian rates.
Despite this short-term volatility, we retain a constructive view on
Brazilian fundamentals and see potential for further compression in
nominal rates.
We have been emphasizing that BCB was open to the idea of
accelerating the easing pace…
…and the February IPCA reinforced the sharply-falling trend in
inflation.
Likewise, the latest Focus survey showed a hefty downward revision
in the consensual expectation for inflation this year, which is now
closer to our forecast.
Given the Central Bank’s signaling of possible intensification in
frontloading the easing cycle, the disinflationary scenario and the
decline in expectations, we changed our Selic call on March 14.
We now expect two cuts of 100bps (in April and May), two cuts of
75bps (in July and September), and one cut of 50bps (in October).
In the Box, we show that interest rate derivatives price in an
acceleration of BCB’s rate cut cycle. The probability attributed to our
baseline rose after the Fed’s dovish hike and Moody’s outlook
upgrade.
STRATEGY TEAM Ciro Matuo, CNPI ciro.matuo@itaubba.com
Eduardo Marza eduardo.marza@itaubba.com
Contents
1) Currencies p.
- Brazilian Real 3
- Mexican Peso 4
- Chilean Peso 5
- Colombian Peso 6
Box: Disinflation and the Fed give
BCB the leeway to accelerate 6
2) Rates
- Brazil Rates 9
- Non Brazil Rates 12
3) Appendix 16
Page 2
Latam Fixed Income Strategy Monthly – March 17, 2017
1) Currencies For a thorough macroeconomic discussion, see LatAm Macro Monthly – Positive global environment, but for how long?, March 10.
Overview
The noisy domestic news flow fueled the BRL’s volatility and prompted some players to take profits in local rates.
Despite this short-term volatility, we retain a constructive view on Brazilian fundamentals and see potential for further
compression in nominal rates. Our activity and monetary policy projections imply a less steep growth of the general
government gross debt vis-a-vis the consensus. We believe that the economic recovery and a structural decline in
interest rates that would likely follow the adoption of the reforms could, if they persist, be very positive for Brazilian
debt dynamics.
On March 15, Moody's Investors Service upgraded Brazil's outlook to stable from negative and affirmed its issuer
rating at Ba2. According to the agency, the decision follows its expectation that the “downside risks reflected in the
negative outlook are abating” and macroeconomic conditions are stabilizing, “with the economy showing signs of
recovery, inflation falling and the fiscal outlook clearer”. Furthermore, Moody’s cites indications that the functioning of
Brazil's policy framework is improving and the strength of its institutions recovering, supporting planned
implementation of structural fiscal reforms. Finally, the risk of contingent liabilities from government-related entities
“has been significantly reduced”. According to the agency, risks related to financial support to the state-owned oil
company have diminished, while the fiscal cost of debt relief provided to states remains contained.
Commodity prices extended their 4Q16 gains through mid-February but have declined since then, dragged down by
lower metal prices and concerns over China’s hawkish tilt (see more below). We continue to expect iron ore prices to
decline to USD 55/ton by year-end (a more than 30% drop from current levels), mainly driven by a slowdown in
China in 2H17. For more, see our Commodities Monthly Review – China’s hawks undermine metal prices, March 10.
70
7576
77 78
72*
76
79
8183
65
70
75
80
85
2016 2017 2018 2019 2020
We project the general goverment gross debt to stabilize around 80%
Source: Brazil Finance Ministry, Itaú
Median expectations (March's Prisma Fiscal)Itaú's projection
% of GDP
*2016 data comes from the December survey
Page 3
Latam Fixed Income Strategy Monthly – March 17, 2017
Our FX models1 show the decline in commodity prices over the past 30 days and the re-pricing of short U.S.
Treasuries that accompanied the Fed’s signalization of a March hike weighed over all currencies under our coverage.
The broad narrowing of LatAm CDS spreads that followed the FOMC’s meeting (see discussion in the Rates section)
acted as a buffer. We’ll argue below that the advancement of reforms will help to contain the depreciation pressure
over the BRL coming from monetary tightening in the U.S..
BRL (Brazilian Real)
• Fundamentals: Changes to Social Security are essential if the government is to comply with the spending cap
over the next few years. The proposed reforms would bring the federal budget into line with Brazil’s current
demographic scenario. It would also reduce the need for significant cuts to the rest of the budget and support
ongoing structural adjustments to Brazil’s public expenditure. We believe that Social Security reforms are likely to
be approved (albeit with some amendments) by Congress.
1The short-term FX models are outlined in Appendix 1, together with up-to-date estimates.
-4% -4%
2%6%
-8% -9%
6%
14%
-3%
4%
23%19%
1%
15%
66%
72%
-5% -5%
2%
10%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1M 3M 6M 12M
Commodity returns
Source: Bloomberg, Itaú
CRB futuresBrent oilCopperIron oreSoybean
-1%
9%
5%
20%
6%7%
2%
-8%
-3%
2% 2%4%
-2%
3%1%
8%
-10%
-5%
0%
5%
10%
15%
20%
25%
1M 3M 6M 12M
Latam FX - spot retuns
Source: Bloomberg, Itaú
BRLMXNCLPCOP
-2%
-4%
-1%-2%
-3%
-1%
-1%
-2%
2% 2%
-2%
3%
1% 1%
1%
1%
-6%
-4%
-2%
0%
2%
4%
6%
8%
BRL COP CLP LatAm
Monthly returns - break down
Source: Bloomberg, Itaú
(+) appreciation(-) depreciation
Commodity pricesInterest-rate differentialResidualCDS spreads
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Deviations from model estimates
Source: Bloomberg, Itaú
%, deviation from short term estimate
(+) cheap currency (-) rich currency
BRL (-1.8 s.d. from m.p.)COP (-0.4 s.d. from m.p.)CLP (-0.7 s.d. from m.p.)
s.d. = standard deviationm.p. = model projection
-9.3%
-1.8%
-1.8%
Page 4
Latam Fixed Income Strategy Monthly – March 17, 2017
• Technicals: Despite the hefty weakening of early March, the BRL’s hedging costs still outperformed EMFX peers.
Accordingly, the technical position remained neutral, with institutional investors neither net long nor net short.
• Positioning: The BRL remains rich according to our numbers: it is trading more than 9% stronger than the “fair-
value” (1.8 standard-deviations). We still see the tender depreciating towards 3.35/USD by YE17, amid a more
challenging international scenario. Nonetheless, the BRL could remain overvalued in the short term due to the
anticipation of inflows induced by the tax regularization program (approved in the Senate on March 14).
MXN (Mexican Peso)
• Fundamentals: The current account deficit narrowed around year-end, driven by an improvement of the non-
energy trade balance. We expect further narrowing in coming quarters as the economy rebalances its sources of
growth (with weaker domestic demand partly offset by firmer exports).
• Technicals: Mexico’s FX commission, a joint entity representing the central bank and the Ministry of Finance, in
February announced the creation of a USD 20 billion FX swap facility. In the first auction, all of the USD 1 billion in
volume tendered was placed. The technical position seems to be retreating towards more neutral levels.
According to CME data, short MXN non-commercial positions receded from the January peaks, owing in part to
the newly-introduced FX swap program.
• Positioning: Since the announcement of the FX hedging program, the Peso has outperformed LatAm peers
meaningfully, although we note that an easing of the risk of protectionism perceived by the market could also
have played a role. In this regard, the news flow got more constructive in recent days. The Director of the National
Trade Council Peter Navarro stated that “We have a tremendous opportunity, with Mexico in particular, to use
higher rules of origin to develop a mutually beneficial regional powerhouse where workers and manufacturers on
both sides of the border will benefit enormously”.
13
15
17
19
21
23
25
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
BRL's volatility vs. peers
Source: Bloomberg, Itaú
BRL implied volatility Average volatility of large
EMs*
%, at-the-money(6-month)
* peers: Mexico, South Africa, Turkey and Russia
-15
-10
-5
0
5
10
15
20
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Technical position (USD futures)
Institutional investors (nationals + foreigners)
USD billion
(+) long USDBRL(-) short USDBRL
Source: BM&F, Itaú
Page 5
Latam Fixed Income Strategy Monthly – March 17, 2017
CLP (Chilean Peso)
• Fundamentals: Given the expectation that average copper prices will exceed last year’s levels and the fact that
internal demand remains weak, Chile’s current account deficit is likely to stay low this year. We now expect an
CLP of 675/USD by the end of the year (down from our previous estimate of 685/USD), with a further weakening
to 695/USD by the close of 2018.
• Technicals: Data from the formal FX derivatives market reveals foreigners’ bearish positions rose strongly in
March, consistent with the Fed’s hawkish guidance and a string of solid U.S. economic data.
• Positioning: The CLP edged closer to its fair value over the past month, and our estimates suggest no
statistically meaningful mispricing persists. The Peso is 1.8% stronger than our FX models’ estimate, meaning a
0.7 standard deviations gap. Part of this correction stems from the less expansionary Chinese economic policy
stance (e.g. the reduction of the 2017 growth target) and the halting of the earlier copper rally. Overall, we hold a
bullish view on the pair, since the outlook for copper prices has improved. Despite the likelihood of a slowdown in
China, planned grid projects ought to sustain strong copper demand. Supply, meanwhile, will likely be constrained
by an abnormal amount of weather-related mine stoppages and/or wage negotiations throughout 2017.
-110
-90
-70
-50
-30
-10
10
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
MXN: technical position - CME futures
Source: IMM, Itaú
Net position (non-commercial)
in thousand contracts
(+) long MXN (-) short MXN
-12
-11
-10
-9
-8
-7
-6
-5
-4
Jul-16 Sep-16 Nov-16 Jan-17 Mar-17
Technical position -formal FX derivatives market
Source: BCCh, Bloomberg, Itaú
Offshore investors
USD Billion
(+) long CLP (-) short CLP
Page 6
Latam Fixed Income Strategy Monthly – March 17, 2017
COP (Colombian Peso)
• Fundamentals: Colombia’s trade deficit shank last year after reaching a historical high in 2015, owing to a sharp
narrowing of the non-energy deficit. Looking ahead, we expect robust year-over-year export growth to continue as
a result of low comparison bases for commodity prices and see the current-account deficit receding to 3.6% of
GDP this year. Together with lower uncertainties surrounding the fiscal consolidation path due to the passing of
tax reform measures last year, the improvement in Colombia’s fundamentals supported Fitch’s outlook upgrade of
the sovereign rating. The agency affirmed the BBB rating and revised the outlook to stable from negative,
reverting the decision adopted mid-last year. Even though Colombia’s gross general government debt edged
closer to 50% in 2016 (nearly 10% above the 'BBB' median), Fitch expects debt to stabilize over the forecast
period, given the gradual pace of fiscal consolidation and a “modest appreciation” of the currency.
• Positioning: Our numbers suggest that, once one adjusts for the relatively higher volatility of the COP, there is no
significant mispricing for the time being. From structural standpoint, we are constructive on the COP since the
ongoing strengthening of Colombia’s fundamentals is poised to make the Peso less sensitive to external shocks.
However, idiosyncratic risks could increase the pair’s volatility in short term, as the market discounts a heightened
likelihood of delays in the 4G PPP program.
2) Rates
Overview
The FOMC raised the fed fund rates and continued to indicate a pace of three hikes per year, as the Fed seems to
prefer to wait and see whether higher consumer and business sentiment in fact pulls up activity. In the Press
Conference, Chair Yellen said she is yet to see “hard” evidence that “soft” data is materializing into stronger spending
by businesses and households, so the economic outlook has not changed significantly. The distribution of the dots
remained largely consistent with three rate hikes in 2017. Overall, the result was dovish compared to our expectation
that the Fed would signal a pace of four hikes and the range of potential scenarios debated in the market.
Although the Fed has been cautious, its monetary policy is conditional to the economic outlook, which in our view is
tilted to the upside. The U.S. economic landscape keep us comfortable that the Fed will end up delivering four hikes
in 2017 (June, September and December) and in 2018. The alternative scenario for 2017 would be three hikes (June
and September) and starting to reduce its balance sheet in December. In both scenarios, the Fed hikes in June,
since, in our view, only an unforeseen shock would prevent it doing so.
1.24
1.75
2.05
1.38
2.13
2.88
0.5
1.0
1.5
2.0
2.5
3.0
Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19
Fed dots still signal 3 hikes in 2017
Source: Bloomberg, Itaú
Fed Funds FuturesMedian FOMC dots (March, 2017)
% p.a.
Source: Bloomberg, Itaú
Page 7
Latam Fixed Income Strategy Monthly – March 17, 2017
Brazil Rates
In the minutes of the February monetary policy meeting, the BCB signaled that the length of the cycle will depend on
its estimates of the Brazilian economy’s “structural interest rate”, which the committee will reassess over time. Based
on BCB signals that further interest rate cuts are possible and that it may frontload the easing cycle, in our March
baseline macroeconomic scenario we changed our YE17 Selic forecast to 8.25% (down from 9.25% in our previous
scenario).
Inflation expectations of professional forecasters keep falling, supported by another IPCA dowside surprise (see our
Macro Brazil - IPCA increased 0.33% in February, below the bottom of market estimates, March 10). In fact, average
expectations five years forward are strolling around 4.21%. Asset-implied inflation is falling as well, with the 4y1y
breakeven trading only 61bps above the survey-based measure (the historical average is 103bps) and the 1y1y still
below average forecasts. Taken together, surveys and asset prices seem to be incorporating the view that, by next
June, there may be a window of opportunity to begin the convergence of the Brazilian inflation target towards
international standards (see our Macro Vision - When to cut the inflation target?, March 6).
200
220
240
260
280
300
320
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
Nov-16 Dec-16 Jan-17 Feb-17 Mar-17
Brazilian CDS x NTN-F 2025
% p.a.
bps
CDS Spreads (rhs)NTN-F 2025
Source: Bloomberg, Itaú
200
220
240
260
280
300
320
5.0
5.2
5.4
5.6
5.8
6.0
6.2
6.4
Nov-16 Dec-16 Jan-17 Feb-17 Mar-17
Brazilian CDS x NTN-B 2055
% p.a.
bps
CDS Spreads (rhs)NTN-B 2055
Source: Bloomberg, Itaú
4.45%
4.26%
4%
5%
6%
7%
8%
9%
10%
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Short breakeven vs. forecasts
Source: Bloomberg, BCB, Itaú
Breakeven (NTN-Bs, 1y1y)Survey Forecast (Focus, 2y)
% p.a.
avg. premium (2010-2016) = 0.65%
4.82%
4.21%4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Long breakeven vs. forecasts
Source: Bloomberg, BCB, Itaú
Breakeven (NTN-Bs, 4y1y)Survey Forecast (Focus, 5y)
% p.a.
avg. premium (2010-2016) = 1.03%
Page 8
Latam Fixed Income Strategy Monthly – March 17, 2017
The front end pricing is no longer consistent with our macroeconomic baseline. In fact, even after removing our
historical term premium estimate, the curve implies only 330bps of cuts for 2017, whereas we see the BCB reducing
the Selic rate by 400bps this year. Given the Central Bank’s signaling of possible intensification in frontloading the
easing cycle, the disinflationary scenario and the decline in expectations, we now expect two cuts of 100 bps (in April
and May), two cuts of 75 bps (in July and September), and one cut of 50 bps (in October). The risks to this forecast
are the same that we envisage for the inflation path and seem symmetric2. In contrast to the front end, the back end
valuation changed little over the past month. The 5y5y forwards are trading around 10.7% - fairly close to our “fair
value” estimate3, which is currently around 10.2%.
2 For a thorough discussion, we refer to our Macro Brazil - Lower expectations, faster pace - March 14.
3 This estimate assumes the real U.S. terminal rate is 1.0%, the steady-state inflation is 4.5% and uses 10-year CDS spreads
(310bps) as the country risk proxy. Together with our term premium estimate, we arrive at an upper bound of 10.4%.
-290
-332
-18
-305
-29
-350
-300
-250
-200
-150
-100
-50
0
2017YE 2018YE
DI Futures: implicit rate hikes by...
Source: Bloomberg, BCB, Itaú
Unadjusted for TP*Adjusted for TP*
Analysts' consensusbps
* TP = Term-premium
1.0%
3.1%
4.5%
1.6%
10.7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Brazil
Fair value for long term rates - Brazil
Source: Bloomberg, Itaú
Total:10.2%
p.a. U.S. real terminal rateCDS spread (10-year)
Domestic inflation targetTerm premium
Forward rate (5y5y)
Page 9
Latam Fixed Income Strategy Monthly – March 17, 2017
Box: Disinflation and the Fed give BCB the leeway to accelerate
In an interview on March, BCB’s Goldfajn reinforced the message of the latest minutes that the board wants to keep
a high degree of flexibility. Other voting members also stressed that coming decisions will depend on incoming data
and the balance of risks. The price action in interest rates derivatives suggests that, on the market’s eyes, recent
events have opened the doors for an acceleration of the easing pace. First, February’s IPCA clip revealed a sharper
and more widespread decline in current inflation than previously expected. This surprise echoed in the latest Focus
survey: the median forecast for 2017 CPI dropped 17bps to 4.19%. The FOMC’s guidance also played a role, as the
Fed continued to indicate a pace of three hikes per year - a dovish outcome compared to the range of potential
scenarios debated by market agents. Finally, Moody’s outlook upgrade paved the way for the market to price-in
higher odds of a more aggressive reduction in rates happening as early as in the next meeting.
With these two positive events, markets stepped up bets of a 100-bp cut in April, as show in DI futures pricing. On
March 16, the probability of a 100-bp cut in the April meeting embedded in the curve reached 94%. Likewise, IDI
options attribute the highest likelihood to our baseline. Using prices as of March 16, the risk-neutral probability of two
consecutive 1p.p. cuts (in April and May) is around 35%.
0%
20%
40%
60%
80%
100%
120%
140%
1-M
ar
2-M
ar
3-M
ar
4-M
ar
5-M
ar
6-M
ar
7-M
ar
8-M
ar
9-M
ar
10
-Mar
11
-Mar
12
-Mar
13
-Mar
14
-Mar
15
-Mar
16
-Mar
April Copom - DI futures implied odds
Source: BM&F, Itaú
100-bp cut75-bp cut
IPCA (Feb) March's FOMC
IDI index** Selic rate Probability
12-Apr-2017 31-May-2017 (July 3, 2017) (July 3, 2017) (call-spreads)
- > 10.75% 11%
-75bps -75bps 238393 10.75% 18%
-75bps -100bps 238348 10.50% 14%
-100bps -100bps 238235 10.25% 35%
-125bps -100bps 238121 10.00% 16%
-125bps -125bps 238076 9.75% 4%
- < 9.75% 3%
*/ Prices as of March 16, 2017
**/ IDI index in points (1 point = BRL 1)
Source: BM&F, Itaú
Copom scenarios
Tail-risk
Tail-risk
Option-implied probability of Copom decisions*
Page 10
Latam Fixed Income Strategy Monthly – March 17, 2017
Looking further ahead in the monetary flexibilization cycle, swaptions discount a roughly symmetric balance of risks
to our baseline scenario. In fact, as of March 16, these options price-in around 51.6% probability that the effective
CDI across 2H17 will be lower than our forecast.
In sum, option traders believe that the sharply-falling trend in inflation and the Fed’s dovish hike opens the door for
an acceleration of the easing pace. On upcoming reports, we’ll contribute to the debate on the level of the structural
interest rate in the Brazilian economy.
Non-Brazil LatAm rates: Mexico, Chile and Colombia
In Mexico, the latest surveys highlighted stability of long-term inflation expectations. Together with a Central Bank
mindful of the economic costs of hiking rates, it means that additional tightening will come at a more moderate pace
than before. In Colombia, fiscal and external fundamentals are improving and we’ll argue below this will likely open
an opportunity to extend duration in the long end of IBR swaps.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
5.5 6.2 6.9 7.6 8.3 9.0 9.7 10.4 11.1 11.8 12.5
Ris
k-n
eu
tra
l d
en
sit
y
Price of Jul-17 contract (interest rate, p.a.)
The options market discounts balanced risks to our scenario
Source: Bloomberg, Itaú
Probability distributionimplied in options over
DI1 future (type 2)
Source: Bloomberg, Itaú
Average CDI rate over 2H17 (Itaú scenario)
Source: Bloomberg, Itaú
51.6%
3.68
3.00
3.48
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
4.5
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
Inflation expectations(2 years forward)
Source: Latin Consensus , Banxico, Banrep, BCCh, Itaú
% p.a.
MexicoChile Colombia
upper bound
target
* latest data derived from Latin Consensus
1.0% 1.0% 1.0%
2.0%1.3%
2.2%
3.0%
3.0%
3.0%
1.7%
1.0%
7.6%
4.6%
7.3%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
Mexico Chile Colombia
Fair value for long rates - LatAm
Source: Bloomberg, Itaú
U.S. Real terminal rateCDS spread (10-year)Domestic inflation targetTerm premiumForward rates (5y5y)
% p.a.
7.7%
6.3%
7.9%
Page 11
Latam Fixed Income Strategy Monthly – March 17, 2017
MEXICO
Banxico continues to focus on potential second-round effects of higher gasoline prices and the MXN depreciation -
namely a “further increase of inflation expectations”, as stated in the latest inflation report. However, the central bank
now highlights its view that hiking rates to fight short-term inflation shocks can be “inefficient and costly in terms of
economic activity”. We see the next Banxico hike coming by the end of March and expect it to take the reference rate
to 7.0% by YE17, through three 25-bp rate hikes that follow respective moves of the same magnitude by the Fed in
the near-term. The curve implies 50bps in hikes this year, after controlling for the term premium.
The near-perfect correlation of Mexican yields with the MXN observed in the beginning of the year has subsided after
the implementation of the FX hedging program. For the 1-year tenor, the correlation dropped to roughly 0.3, whereas
for longer-dated rates it is still high. Likewise, breakevens receded from the historical high reached after the early-
January inflationary shocks. Given our view that the government will deliver its fiscal targets for 2017 – thus
potentially averting a sovereign downgrade – and the ongoing adjustment in Mexico’s external fundamentals, we
believe the case for extending duration in Mexican yields have strengthened. Notwithstanding the recent correction,
implied inflation is still too-high relative to our baseline scenario. Moreover, the measures announced by the
exchange rate commission will likely lead to less-aggressive monetary tightening.
5.25%
5.75%
6.25%
6.75%
7.25%
7.75%
Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
Forward curve pricing (TIIE swaps) vs. analysts' projections
Source: Bloomberg, Latin Consensus, Itaú
% p.a.
* TP = Term-premium (historical)
Market pricingMarket pricing (ex-TP*)Itaú forecastConsensus forecast
70
5
54
-16
95
85
-30
-10
10
30
50
70
90
110
2017YE 2018YE
TIIE swaps: implicit rate hikes by...
bps
* TP = Term-premium
Unadjusted for TP*Adjusted for TP*Analysts' consensus
Source: Bloomberg, Latin Consensus, Itaú
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17
Rates-FX correlation in Mexico
Source: Bloomberg, Itaú
Correlation coefficient (100 days)
1Y TIIE Swap2Y TIIE Swap5Y TIIE Swap
10Y TIIE Swap
critical level
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
Mexican breakeven inflation
Source: Bloomberg, Itaú
2-year5-year
% p.a., 30-day moving average
lower bound
upper bound
target
Page 12
Latam Fixed Income Strategy Monthly – March 17, 2017
CHILE
In its March meeting, the BCCh cut its policy rate by 25bps to 3.0%, as expected by the market and us. Importantly,
the press release announcing the decision retained an easing bias. The central bank noted that recent
macroeconomic trends (low inflation and weak activity) could require additional monetary stimulus. We consider this
the precursor to the central bank expanding its baseline scenario for the easing cycle. This change will materialize in
the upcoming IPoM (to be published on April 3). Recent comments from the Governor built the case for a rate cut in
March. He noted increased risks of inflation undershooting the target, while the labor market has loosened and the
economic weakness is not solely due to mining.
We believe further easing is needed to ensure inflation remains anchored to the 3% target. In spite of the seasonally
strong inflation readings during 1Q17, the likelihood that inflation will languish near the floor of the 2-4% tolerance
persists. This would occur amid a firm CLP and a widening output gap, supporting calls for additional rate cuts. By
yearend, we see the policy rate at 2.5%, concluding a 100-bp easing cycle.
COLOMBIA
Banrep surprised the market for the third consecutive month when it reduced the policy rate in February. Governor
Echavarría and Finance Minister Cardenas stated at the press conference of the decision the strong decline of
consumer confidence raised concerns within the board. In fact, the minutes of the meeting revealed that a majority of
the board is now more worried on activity.
Furthermore, the composition of the board is changing. Gerardo Hernández has been sworn in as the replacement of
Gustavo Cano. The board will now be fully represented by seven members at this month’s meeting, eliminating the
possibility of a stalemate. The delayed introduction of Hernández to the board was due to his former position as the
banking supervisor which called for a quiet period between job swaps. Hernández is a lawyer with specialization in
administrative law. He also undertook graduate studies in economics at the New School for Social Research in New
York and enrolled in central banking studies at the IMF. Mr. Hernández is no stranger to Banrep as he previously
worked as secretary to the board and was the Bank’s executive manager. The board will experience another change
in May, when José Antonio Ocampo replaces César Vallejo.
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Forward curve pricing (Camara swaps) vs. analysts' projections
Source: Bloomberg, Latin Consensus, Itaú
% p.a.
* TP = Term-premium (historical)
Market pricingMarket pricing (ex-TP*)Itaú forecastConsensus forecast
-62
41
-72
21
-17
38
-80
-60
-40
-20
0
20
40
60
2017YE 2018YE
Camara swaps: implicit rate hikes by...
Source: Bloomberg, Latin Consensus, Itaú
bps
* TP = Term-premium
Unadjusted for TP*Adjusted for TP*
Analysts' consensus
Page 13
Latam Fixed Income Strategy Monthly – March 17, 2017
The pricing of IBR swaps curve edged closer to our scenario of monetary easing, but still remains somewhat
dislocated. The curve prices 150bps in rate cuts this year, after filtering the term premium. Looking ahead, we expect
the board to continue to cut rates as internal demand remains fragile, while the effects from previous supply shocks
on inflation diminish. We still expect a policy rate of 5.50% by the end of this year – meaning 175bps in rate cuts. The
disinflationary trend is poised to continue ahead, amid a firmer COP and weak demand. Together with a board more
concerned with growth, this opens room for more easing than currently priced in swaps.
In light of this premium built in the front end and the country’s relatively high external imbalances, we think the 1-yr/3-
yr is the best sector to place receivers. In fact, the rates-FX association in the front end fell towards non-significant
levels by mid-March, whereas the correlation on the back end remains high. Since we expect further correction in
Colombia’s current account balance, we believe the co-movement of the COP with the 10-year will diminish ahead,
thus opening a better opportunity to receive the long end of the curve.
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Forward curve pricing (IBR swaps) vs. analysts' projections
Source: Bloomberg, Latin Consensus, Itaú
% p.a.
* TP = Term-premium (historical)
Market pricingMarket pricing (ex-TP*)
Itaú forecastConsensus forecast
-116
-78
-149
-109
-134
-219
-250
-200
-150
-100
-50
0
2017YE 2018YE
IBR swaps: implicit rate hikes by...
bps
* TP = Term-premium
Unadjusted for TP*Adjusted for TP*Analysts' consensus
Source: Bloomberg, Latin Consensus, Itaú
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17
Rates-FX correlation in Colombia
Source: Bloomberg, Itaú
Correlation coefficient (100 days)
1Y IBR Swap2Y IBR Swap5Y IBR Swap
10Y IBR Swap
critical level
Page 14
Latam Fixed Income Strategy Monthly – March 17, 2017
Appendix 1: FX models
Our short-term financial models can be understood as extended-UIP (uncovered interest parity), whereby we model
FX trends using as regressors U.S. and local (market or benchmark) rates, the country risk premium (CDS spreads
as proxy) and commodity prices (for oil, copper and/or CRB, depending on the currency). The final set of explanatory
variables and the significance of the slopes will naturally change accordingly with the currency being modeled.
To estimate the OLS regressions, we used a monthly sample starting in 2011, so as to capture the recent dynamics
in LatAm FX. One shortcoming of our methodology is that our models do not account for (long-term) current account
balance conditions, yet the outlook for the external accounts may be indirectly embedded in CDS spreads (one of the
explanatory variables). These models may yield a good approximation of short-term trends, since FX tends to
behave as an asset price in the short run. In the long run, however, balance-of-payment conditions prevail as an FX
driver. Thus, our models are likely to lose accuracy over longer horizons.
0.150.12 0.10
-0.22
0.02
-0.19
0.29
0.07 0.07
-0.46 -0.49
-0.39
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
USDBRL USDCOP USDCLP
FX Rate Sensitivity
Source: Bloomberg Itaú
elasticity estimates
monthly data (Jul-11 to Feb-17)
U.S. Treasury yields (2y)Local yields (short-end)
CDS spreadsCommodity prices
1.8
2.3
2.8
3.3
3.8
4.3
4.8
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
BRL vs. projection
Source: Bloomberg, Itaú
Actual levelModel projectionInterval: +/- 1 std. dev. (6-year window)
USD/BRL
12
14
16
18
20
22
24
26
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
MXN vs. projection
Source: Bloomberg, Itaú
USD/MXN
Actual levelModel projectionInterval: +/- 1 std. dev. (6-year window)
Page 15
Latam Fixed Income Strategy Monthly – March 17, 2017
Appendix 2: CDS valuation model - Brazil
Our valuation model for Brazilian 5-year credit spreads was introduced in a previous Monthly report. The variables
used are: (i) GDP-weighted average of EM spreads; (ii) the steepness of the U.S. Treasuries curve (2s30s); (iii) non-
commercial net long positions on the AUD normalized by open interest; (iv) the real exchange rate (normalized to
have zero mean and unitary variance); (v) the ratio of the trailing 12 months internal federal government nominal
interest payments divided by the 12-month average federal domestic securities debt; (vi) a numeric scale based on
the qualitative rating provided by the three major rating agencies and (vii) an indicator variable of whether or not
Brazil holds investment grade status by at least two agencies. The latter is used to partial out the impact of external
shocks over Brazilian country-risk when it is deemed investment grade and when the country holds a high-yield
status.
550
600
650
700
750
800
850
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
CLP vs. projection
Source: Bloomberg, Itaú
USD/CLP Actual levelModel projection
Interval: +/- 1 std. dev. (6-year window)
1,700
1,950
2,200
2,450
2,700
2,950
3,200
3,450
3,700
3,950
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
COP vs. projection
Source: Bloomberg, Itaú
USD/COP
Actual levelModel projectionInterval: +/- 1 std. dev. (6-year window)
10
60
110
160
210
260
310
360
410
460
510
Mar-06 Jan-08 Nov-09 Sep-11 Jul-13 May-15 Mar-17
Model adherence to the data
Source: Bloomberg, Itaú
CDS spreads (5-year)Fitted values
bps
-3
-2
-1
0
1
2
3
Mar-06 Jan-08 Nov-09 Sep-11 Jul-13 May-15 Mar-17
CDS model signals
Source: Bloomberg, Itaú
Component not explained by the model (Z Scores)
One standard devation
Page 16
Latam Fixed Income Strategy Monthly – March 17, 2017
Appendix 3: Itaú macro projections (vs. consensus) For a thorough macroeconomic discussion, see LatAm Macro Monthly – Positive global environment, but for how long?, March 10.
Itaú Survey Itaú Survey
Real GDP growth - % 1.0 0.5 4.0 2.4
CPI - % 4.1 4.2 3.8 4.5
Monetary Policy Rate - eop - % 8.25 9.00 8.25 8.75
BRL / USD - eop 3.35 3.30 3.45 3.40
Itaú Survey Itaú Survey
Real GDP growth - % 1.6 1.5 2.1 2.1
CPI - % 5.0 5.1 3.3 3.7
Monetary Policy Rate - eop - % 7.00 7.20 6.50 7.10
MXN / USD - eop 20.50 21.33 19.50 21.33
Itaú Survey Itaú Survey
Real GDP growth - % 2.0 1.9 2.5 2.5
CPI - % 2.8 3.0 3.0 3.0
Monetary Policy Rate - eop - % 2.50 2.83 3.25 3.38
CLP / USD - eop 675 669 695 673
Itaú Survey Itaú Survey
Real GDP growth - % 2.3 2.4 2.8 3.0
CPI - % 4.1 4.3 3.5 3.4
Monetary Policy Rate - eop - % 5.50 5.95 4.50 5.10
COP / USD - eop 3,080 3,030 3,175 3,003
Source: Itaú, Latin Consensus Forecasts, BCB, Banxico, BCCh, Banrep, Bloomberg
BRAZIL2018F
2018F
2018F
2018F
MACROECONOMIC FORECASTS
2017F
2017F
MEXICO
COLOMBIA
CHILE
2017F
2017F
Page 17
Latam Fixed Income Strategy Monthly – March 17, 2017
Appendix 4: LatAm rates trackers (Updated as of March 16, 2016 – closing prices)
Brazil
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(BRL Billions) (Years) (% a.a.)
CDI RATE - - 12.13 -75 -150 -200 -200
May-17 0.1 11.83 -17 -106 -160 -
Jun-17 - 0.2 11.54 -24 -117 -175 -
Jul-17 - 0.3 11.19 -34 -133 -200 -245
Oct-17 - 0.5 10.47 -54 -159 -235 -322
Jan-18 - 0.8 10.01 -63 -172 -254 -379
Jul-18 - 1.3 9.64 -64 -178 -257 -435
Jan-19 - 1.8 9.54 -62 -182 -245 -470
Jul-19 - 2.3 9.65 -53 -181 -230 -476
Jan-20 - 2.8 9.77 -47 -183 -221 -473
Jul-20 - 3.3 9.91 -41 -183 -216 -465
Jan-21 - 3.8 9.99 -35 -187 -208 -461
Jan-23 - 5.8 10.25 -27 -188 -203 -455
Jan-25 - 7.8 10.35 -23 -187 -204 -458
Jan-26 - 8.8 10.36 -23 -187 -205 -463
Jan-27 - 9.8 10.41 -22 -185 -207 -462
Apr-17 70.6 0.0 12.18 -7 -87 -143 -144
Jul-17 61.1 0.3 11.14 -40 -140 -200 -246
Oct-17 68.0 0.5 10.42 -59 -163 -239 -332
Jan-18 63.1 0.7 9.96 -63 -173 -259 -372
Apr-18 73.7 0.9 9.75 -67 -174 -263 -408
Jul-18 58.4 1.2 9.63 -66 -174 -259 -428
Oct-18 53.5 1.4 9.58 -64 -180 -255 -
Jan-19 93.3 1.6 9.56 -61 -180 -247 -460
Apr-19 37.4 1.8 9.57 -62 - - -
Jul-19 37.7 2.1 9.68 -55 -179 -227 -465
Jan-20 70.2 2.5 9.79 -48 -182 -224 -461
Jul-20 96.7 3.0 9.95 -41 -183 -211 -
Jan-18 15.6 0.7 9.99 -63 -171 -253 -361
Jan-19 11.5 1.5 9.48 -63 -185 -250 -450
Jan-21 101.7 2.9 9.96 -35 -185 -205 -446
Jan-23 104.8 4.0 10.19 -19 -176 -198 -436
Jan-25 67.9 5.0 10.19 -23 -181 -197 -444
Jan-27 46.4 5.8 10.24 -20 -173 -201 -446
May-17 47.1 0.1 6.81 52 68 39 78
Aug-18 59.6 1.3 5.25 -51 -69 -96 -97
May-19 70.9 1.9 5.10 -44 -89 -106 -118
Aug-20 58.9 3.0 5.17 -36 -92 -99 -143
May-21 70.4 3.5 5.28 -31 -90 -89 -129
Aug-22 110.4 4.4 5.35 -27 -83 -79 -140
May-23 51.9 4.9 5.34 -24 -79 -77 -152
Aug-24 51.6 5.8 5.28 -15 -82 -75 -154
Aug-26 28.6 7.0 5.33 -14 -76 -69 -152
Aug-30 33.3 9.1 5.13 -18 -85 -85 -171
May-35 60.3 10.9 5.21 -15 -84 -81 -158
Aug-40 45.2 12.7 5.16 -15 -83 -85 -171
May-45 87.3 13.7 5.23 -15 -80 -83 -161
Aug-50 140.4 15.0 5.21 -9 -80 -81 -171
May-55 25.3 15.6 5.15 -10 -82 -85 -172
Source: Bloomberg (BGN), Itaú
(basis points)
DI
Fu
ture
sL
TN
RE
AL
RA
TE
S
NT
N-B
NT
N-F
NO
MIN
AL
RA
TE
S
Page 18
Latam Fixed Income Strategy Monthly – March 17, 2017
Mexico
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(MXN Billions) (Years) (% a.a.)
TIIE Rate - - 6.63 4 55 204 257
3-month - 0.2 6.84 11 65 200 269
6-month - 0.5 7.02 9 62 202 278
9-month - 0.7 7.07 1 47 196 275
1-year - 1.0 7.17 -7 42 193 274
2-year - 1.9 7.26 -17 22 174 261
3-year - 2.7 7.33 -20 10 160 243
4-year - 3.5 7.38 -22 4 153 222
5-year - 4.2 7.40 -27 -5 142 199
7-year - 5.5 7.57 -25 -8 138 176
10-year - 7.1 7.72 -25 -11 128 153
15-year - 8.9 7.95 -19 -17 119 132
20-year - 10.1 8.06 -23 -19 111 120
30-year - 21.1 8.24 -22 -20 112 115
Jun-17 114.7 0.2 6.57 10 62 182 235
Dec-17 159.1 0.7 6.64 16 58 205 242
Jun-18 186.0 1.2 6.71 -10 31 154 208
Dec-18 258.6 1.6 6.77 -12 28 143 192
Dec-19 261.4 2.5 6.85 -12 20 131 160
Jun-20 171.6 2.8 6.95 -7 23 133 159
Jun-21 322.6 3.6 7.01 -11 15 123 146
Jun-22 134.1 4.3 7.07 -13 9 121 131
Dec-23 96.4 5.1 7.16 -13 0 121 122
Dec-24 262.1 5.5 7.23 -10 -4 121 125
Mar-26 120.4 6.8 7.27 -14 -7 118 115
Jun-27 88.9 7.0 7.37 -14 -5 113 106
May-29 101.7 7.6 7.47 -15 -8 113 100
May-31 137.2 8.5 7.55 -16 -9 108 90
Nov-34 93.4 9.5 7.64 -15 -4 106 86
Nov-36 67.0 9.5 7.66 -18 -3 105 84
Nov-38 99.7 10.1 7.68 -18 -8 105 80
Nov-42 193.5 11.0 7.69 -18 0 104 76
Dec-17 112.5 0.7 3.26 113 141 191 178
Jun-19 162.0 2.1 3.08 51 52 81 69
Dec-20 103.4 3.5 3.19 41 47 72 55
Jun-22 121.6 4.9 3.28 38 43 66 38
Dec-25 188.1 7.3 3.39 17 16 53 28
Nov-35 123.1 12.9 3.65 -7 -7 28 -5
Nov-40 249.5 15.4 3.75 -8 -4 32 -4
Nov-46 124.0 17.5 3.76 -7 -6 28 -6
Source: Bloomberg (BGN), Itaú
UD
IBO
NO
RE
AL
RA
TE
S
(basis points)
TII
E S
wap
sM
BO
NO
NO
MIN
AL
RA
TE
S
Page 19
Latam Fixed Income Strategy Monthly – March 17, 2017
Chile
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(CLP Billions) (Years) (% a.a.)
Interbank Rate - - 3.50 - - - 0
3-month - 0.3 2.98 -11 -34 -54 -69
6-month - 0.5 2.96 -10 -25 -52 -80
9-month - 0.7 2.94 -9 -23 -50 -87
1-year - 1.0 2.92 -9 -23 -53 -94
18-month - 1.5 2.95 -10 -20 -49 -100
2-year - 2.0 3.01 -7 -16 -38 -94
3-year - 2.9 3.25 -2 -10 -21 -80
4-year - 3.8 3.49 2 -7 -7 -69
5-year - 4.6 3.71 6 -5 2 -57
6-year - 5.4 3.88 8 -6 8 -49
7-year - 6.2 4.01 6 -9 10 -44
8-year - 6.9 4.09 6 -13 8 -41
9-year - 7.6 4.20 8 -11 9 -36
10-year - 8.3 4.26 7 -11 10 -34
15-year - 11.2 4.39 5 -16 10 -31
20-year - 13.5 4.49 7 -13 12 -33
Jan-18 450.0 1.0 3.20 -8 -26 -45 -83
Mar-18 344.1 1.0 3.17 -9 -25 -53 -83
Jan-19 290.0 1.9 3.23 -12 -26 -47 -90
Jan-20 762.5 2.8 3.53 0 -12 -28 -69
Feb-21 1,000.0 3.9 3.73 0 - - -
Mar-21 700.0 3.9 3.83 10 - - -
Jan-22 475.4 3.7 3.88 14 2 -10 -39
Jan-24 530.0 5.4 4.00 -1 -21 -10 -41
Mar-26 1,348.0 6.9 4.36 18 0 - -8
Jan-32 464.7 9.4 4.50 16 -5 1 -9
Jan-34 415.0 10.3 - - - - -
Mar-35 547.0 11.4 - - - - -
Jan-43 1,176.3 13.6 4.81 - - - -2
Mar-18 246.8 1.0 3.18 -3 -20 -47 -78
May-18 83.6 1.0 3.18 -11 -25 -42 -78
Jun-18 243.2 1.0 3.20 -8 -25 -41 -74
Jan-19 400.0 2.0 3.32 -3 -16 -34 -
Apr-20 450.0 2.9 3.59 -3 -8 - -63
Jun-20 900.0 2.9 3.66 5 -2 - -57
Jul-20 450.0 2.9 3.43 -6 -19 -39 -75
Feb-21 470.0 3.7 3.75 -1 -10 -22 -51
Mar-22 350.0 4.6 3.82 6 -4 -16 -46
Mar-23 245.0 4.5 - - - - -
May-17 204.0 0.1 -0.64 -89 -254 -164 -134
Jul-17 328.4 0.3 0.48 51 -83 - -42
Jan-18 348.8 0.8 0.55 28 -50 -22 -29
Mar-18 606.6 0.9 0.56 13 -54 -22 -27
Jul-18 440.5 1.3 0.58 21 -53 -25 -29
Aug-18 214.5 1.3 0.58 20 -52 -21 -30
Oct-18 147.5 1.5 0.58 - -51 -21 -30
May-19 25.4 2.0 0.64 19 -48 -20 -36
Feb-21 1,165.4 3.7 0.91 11 -23 -12 -23
Mar-22 609.2 4.6 0.96 15 -20 -8 -18
Sep-22 221.2 4.9 1.01 18 -15 -4 -17
Mar-23 291.4 5.5 - - - - -
May-28 304.1 9.5 1.42 8 -11 4 -5
Feb-31 741.6 11.5 1.49 6 -15 2 -8
Feb-41 741.6 17.6 1.80 6 -11 18 13
Source: Bloomberg (BGN), Itaú
BC
P
NO
MIN
AL
RA
TE
S
(basis points)
CA
MA
RA
Sw
ap
sB
TP
BC
U
Page 20
Latam Fixed Income Strategy Monthly – March 17, 2017
Colombia
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(COP Billions) (Years) (% a.a.)
IBR Rate - - 6.90 -23 -46 -47 93
3-month - 0.0 6.49 -56 -64 -90 10
6-month - 0.2 6.15 -75 -61 -113 -32
9- month - 0.5 6.07 -71 -79 -104 -42
1-year - 0.7 5.95 -67 -73 -102 -54
18-month - 1.2 5.78 -65 -64 -96 -72
2-year - 1.7 5.47 -53 -54 -82 -79
3-year - 2.6 5.48 -36 -53 -56 -88
4-year - 3.4 5.57 -29 -54 -45 -87
5-year - 4.2 5.67 -26 -58 -41 -91
7-year - 5.7 5.89 -20 -67 -43 -106
8-year - 6.3 6.02 -15 -65 -42 -104
10-year - 7.6 6.35 -10 -59 -33 -93
12-year - 8.2 6.44 -10 -67 -33 -100
15-year - 9.0 6.53 -9 -68 -28 -101
20-year - 9.9 6.60 -6 -68 -36 -119
Oct-18 9,678 1.4 6.22 -29 -43 -37 -117
Nov-18 10,233 1.5 6.06 -34 -46 -46 -115
Sep-19 13,740 2.2 6.17 -34 -54 -47 -136
Jul-20 19,472 2.7 6.24 -33 -59 -50 -146
May-22 18,470 4.0 6.46 -19 -50 -37 -162
Jul-24 26,890 5.1 6.73 -4 -43 -30 -153
Aug-26 18,873 6.4 6.90 4 -46 -38 -162
Apr-28 13,804 7.3 7.00 0 -53 -36 -167
Sep-30 14,500 8.1 6.97 5 -59 -41 -178
Apr-19 10,111 1.9 2.64 60 -5 -83 -34
Mar-21 14,863 3.7 3.13 44 13 -30 -51
Feb-23 14,845 5.1 3.27 29 0 - -58
May-25 6,861 6.8 3.47 - - - -52
Mar-33 8,841 11.9 3.80 23 - - -46
Apr-35 3,574 11.8 3.87 10 11 5 -16
Source: Bloomberg (BGN), Itaú
(basis points)
IBR
Sw
ap
sC
OL
TE
S
NO
MIN
AL
RA
TE
SR
EA
L R
AT
ES
UV
R
Page 21
Latam Fixed Income Strategy Monthly – March 17, 2017
Appendix 5: Closed recommendations
Price Date Price Date
Mexico TIIE Swaps: receive 1-year, pay 10-year (DV01-neutral) 252 bps 16-Nov-15 210 bps 10-Feb-16 -45 bps
Chile Camara Swaps: pay the 7-year 4.37% 9-Oct-15 4.37% 2-Feb-16 0 bps
Mexico TIIE Swaps: pay the 7-year 5.80% 2-Dec-15 5.60% 29-Jan-16 -120 bps
FX Buy MXN; Sell COP 174.49 8-Oct-15 173.68 03-Nov-15 -57 bps
Brazil DI Futures: receive Jul16, pay Jan21 (DV01-neutral) 22 bps 8-Oct-15 100 bps 23-Oct-15 78 bps
Mexico TIIE Swaps: Pay the 5-year 5.53% 14-Aug-15 5.20% 15-Aug-15 -151 bps
Chile Camara Swaps: Pay the 10-year 4.58% 14-Aug-15 4.75% 17-set-15 +142 bps
Colombia IBR Swaps: Receive 1-year, Pay 10-year (DV01-neutral) 165 bps 14-Aug-15 185 bps 6-Aug-15 +20 bps
FX Long MXN, Short COP 4.709 10-Aug-15 4.790 20-Aug-15 -194 bps
Colombia IBR Swaps: pay the 5-year 5.36% 16-Mar-15 5.75% 6-Aug-15 +162 p.b.
Mexico TIIE Swaps: receive 1-year, pay 10-year (DV01-neutral) 266 19-Jun-15 245 30-Jul-15 -22 bps
FX Short BRL/CLP 206.77 17-Jun-15 195.00 28-Jul-15 +484 bps
Brazil DI Futures: receive Jan16, pay Jan25 (DV01-neutral) 173.89 19-Jun-15 156.00 21-Jul-15 +11 bps
FX Buy MXN; Sell COP 155.65 12-May-15 163.50 19-May-15 +502 bps
Mexico TIIE Swaps: Pay the 10-year 6.19% 19-Jul-14 6.30% 13-May-15 +86 bps
Colombia IBR Swaps: pay the 1-year 4.39% 17-Apr-15 4.50% 8-May-15 +11 bps
Chile Camara Swaps: pay the 10-year 4.39% 3-May-15 4.60% 8-May-15 +181 bps
Colombia IBR Swaps: receive the 10-year 5.98% 17-Apr-15 6.10% 5-May-15 -93 bps
Mexico Receive the 1-year and pay the 10-year (DV01-neutral) 213 bps 17-Apr-15 236 bps 30-Apr-15 +17 bps
Brazil Long NTN-B 2018 6.31% 2-Apr-15 6.45% 20-Apr-15 -6 bps
FX Long MXN, Short COP 166.76 15-Apr-15 163.50 17-Apr-15 -196 bps
Brazil Receive DI Jan16 13.68% 19-Mar-15 13.30% 6-Apr-15 +29 bps
Mexico Long Mbono 2021 5.47% 19-Mar-15 5.61% 30-Mar-15 -77 bps
Chile Camara Swaps: receive the 10-year 4.54% 19-Mar-15 4.45% 26-Mar-15 +74 bps
FX Short EURMXN 16.36 16-Mar-15 16.45 26-Mar-15 -67 bps
Chile Camara Swaps: pay the 5-year 4.05% 9-Mar-15 4.10% 18-Mar-15 +23 bps
Mexico TIIE Swaps: pay the 10-year 6.26% 16-Mar-15 6.10% 18-Mar-15 -125 bps
FX Sell COP (Vs. USD) 2,669.98 16-Mar-15 2,630.00 18-Mar-15 -150 bps
FX Buy MXN; Sell COP 168.58 10-Mar-15 169.50 12-Mar-15 +54 bps
FX Sell CLP (Vs. USD) 618.94 27-Feb-15 635.60 12-Mar-15 +258 bps
Mexico TIIE Swaps: pay the 5-year 5.30% 3-Mar-15 5.60% 11-Mar-15 +136 bps
Colombia IBR Swaps: pay the 5-year 5.21% 9-Mar-15 5.30% 11-Mar-15 +40 bps
Mexico TIIE Swaps: pay the 10-year (HEDGE to our long position in MBono 2024) 5.85% 9-Feb-15 6.28% 6-Mar-15 +341 bps
Mexico Long Mbono 2024, Pay 2-year TIIE IRS 140 bps 23-Jan-15 148 bps 6-Mar-15 +318 bps
Chile Camara IRS: pay 5-year, receive 2-year 60 bps 13-Feb-15 65 bps 6-Mar-15 +65 bps
Colombia IBR Swaps: pay the 2-year 4.29% 13-Feb-15 4.47% 6-Mar-15 -35 bps
Brazil Receive April 2015 DI Futures 12.20% 23-Dec-14 12.50% 27-Feb-15 +3 bps
Mexico TIIE Swaps: pay the 5-year 5.17% 9-Oct-14 5.20% 23-Feb-15 +14 bps
Brazil DI Futures: receive Jan17, pay Jan21 56 bps 13-Feb-15 45 bps 23-Feb-15 +32 bps
Brazil Long NTN-B 2018 5.83% 6-Feb-15 6.13% 11-Feb-15 -77 bps
Brazil DI Futures: receive Jan16, pay Jan21 60 bps 6-Feb-15 44 bps 10-Feb-15 +154 bps
Brazil Long NTN-B 2030 5.92% 23-Dec-14 6.05% 5-Feb-15 -97 bps
Colombia Receive COLTES Jun2016 5.03% 23-Dec-14 4.66% 4-Feb-15 +50 bps
FX Buy MXNJPY 8.23 23-Dec-14 7.90 30-Jan-15 -432 bps
Chile Camara Swaps: receive 2-year 3.05% 27-Nov-14 2.80% 23-Jan-15 +50 bps
FX Sell CLP (Vs. USD) 616.16 3-Dec-14 625.00 22-Jan-15 +105 bps
FX Sell EURMXN 18.02 18-Dec-14 16.80 16-Jan-15 +676 bps
Brazil Receive Jan-15 DI (Futures) 11.59% 3-Dec-14 11.59% 2-Jan-15 +5 bps
Mexico TIIE Swaps: pay the 10-year 6.00% 9-Oct-14 6.15% 18-Dec-14 +150 bps
FX Sell COP (Vs. USD) 2,286.28 3-Dec-14 2,365.00 9-Dec-14 +336 bps
Brazil Long NTN-F 2025 12.00% 26-Nov-14 12.15% 7-Dec-14 -94 bps
Brazil Long NTN-B 2050 5.77% 26-Nov-14 5.95% 2-Dec-14 -226 bps
FX Long MXN/COP 158.11 19-Nov-14 162.15 2-Dec-14 +255 bps
Brazil Receive DI Jan-16, Pay DI Jan-21 (no immunization) 11 bps 19-Nov-14 -20 bps 21-Nov-14 -268 bps
Chile Camara Swaps: pay the 5-year 4.13% 9-Oct-14 3.79% 21-Nov-14 -170 bps
FX Sell COP (Vs. USD) 2,026.72 3-Oct-14 2,060.00 17-Oct-14 +164 bps
FX Sell CLP (Vs. USD) 582.30 25-Aug-14 591.00 13-Oct-14 +104 bps
Chile Camara Swaps: receive 1y, pay 5y 52bps 23-Jul-14 103bps 9-Oct-14 +127 bps
Colombia IBR Swaps: pay 5y 5.28% 3-Sep-14 5.35% 9-Oct-14 +35 bps
Mexico Mbono: long Dec15, short Dec18 143 bps 23-Jul-14 157 bps 9-Oct-14 +58 bps
Mexico TIIE Swaps: receive 2y, pay 10y 221 bps 3-Sep-14 219 bps 9-Oct-14 +130 bps
Source: Bloomberg
Trading Idea P&L (bps)Entry Closing
Page 22
Latam Fixed Income Strategy Monthly – March 17, 2017
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