Brazil to outperform peers in new external environment · Brazil to outperform peers in new...
Transcript of Brazil to outperform peers in new external environment · Brazil to outperform peers in new...
Brazil to outperform peers in new external
environment
Latam Fixed Income Strategy Monthly January 27, 2017
Please refer to page 23 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
Global GDP growth is set to accelerate to 3.6% this year from 3.1%
in 2016 and there are upside risks. Global inflation is also on the
rise, driven by better commodity prices. With better economic
outlook, interest rates are set to rise in developed countries.
The main risks at the moment are political shifts in the U.S., Brexit
and elections in Europe. China also poses risks, but we see a stable
growth environment in 1Q17.
Amid this external environment and less gradual monetary policy
normalization in the U.S., we think Brazilian fixed income markets
have a comparative advantage vis-à-vis large EMs.
The strong adjustment of Brazilian external accounts that took place
in 2016 and the ongoing fiscal reforms debate contrast with
idiosyncratic uncertainties weighing on Mexico, Turkey and South
Africa.
Such improvement in Brazilian fundamentals suggests the expected
changes in external liquidity will have a diminished impact over the
BRL’s volatility relative to other high-yielders.
STRATEGY TEAM Ciro Matuo, CNPI [email protected]
Eduardo Marza [email protected]
Contents
1) Currencies p.
- Brazilian Real 4
- Mexican Peso 5
- Chilean Peso 6
- Colombian Peso 6
2) Rates
- Brazil Rates 7
- Non Brazil Rates 10
3) Appendix 15
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Latam Fixed Income Strategy Monthly – January 27, 2017
1) Currencies For a thorough macroeconomic discussion, see LatAm Macro Monthly – Stronger global growth, not in LatAm (yet), January 20
Overview
The widespread asset rotation that accompanied the U.S. elections weighed on LatAm assets – particularly on
Brazilian CDS spreads and local rates. Data from the Institute of International Finance reveals that outflows from
emerging markets in November were almost as high as those seen during the “Taper tantrum”. We’ll argue below
that Brazil is poised to outperform large EM peers and we see room for further improvement in real rates (but not in
nominals, for the time being).
Over the past month, commodity prices have continued to rise, driven by strong global economic indicators and
preliminary signs that Opec members are complying with the deal to cut production. Given that China’s economy is
set to remain positive in 1Q17, and the delay in the reaction of U.S. shale-oil producers, short-term prices may
continue to be driven by a tight market. Looking ahead, we expect metal and energy prices to decline throughout
2017, given our projected slowdown in China in 2H17 (particularly in metal-intensive sectors) and stronger oil supply.
We maintain our YE17 Brent forecast of USD 54/bbl, a level that would allow for an additional response by U.S.
shale-oil producers to partly offset Opec’s agreement. For more, see our Commodities Monthly Review – Enjoy the
party, for now, January 18.
-40
-30
-20
-10
0
10
20
30
40
50
60
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
EM outflows after the U.S. elections
Source: IIF, Itaú
EM portfolio flows tracker (total inflows)
USD billions
Taper tantrum U.S. elections 10
15
20
25
30
35
Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Volatility measures
Source: Bloomberg, Itaú
VXEEMVIX
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Latam Fixed Income Strategy Monthly – January 27, 2017
The COP (+3%) benefited heavily from (still tentative) signs that oil-exporters (Opec members and otherwise) are
complying with the agreement. Amid the expected changes of external financial conditions, the currencies of
countries with low current-account deficits (Brazil and Chile) outperformed LatAm peers over the past 30 days: both
the BRL and CLP strengthened 3%. In fact, option prices suggest that the BRL is less vulnerable to the change in
external financing conditions relative to other large EM markets (Mexico, South Africa, Turkey and Russia). After
detaching from peers during 2H15 and 1H16, the market expectation for BRL’s volatility embedded into at-the-money
options (6-month term) decreased steadily over the second half of 2016 and currently lies below the average of
comparable EM countries. We think market sentiment towards Brazilian risk will improve further relative to peers in
coming months. This is so because idiosyncratic uncertainties are likely to increase volatility of the MXN, the TRY
and the ZAR, whereas the fiscal reform effort in Brazil and the strong adjustment in the external accounts that took
place in 2016 will likely keep at bay tail-risk concerns over the BRL.
Our FX-models show that the normalization of Brazilian CDS had a positive impact over the BRL (+3%) over the last
30 days. For the CLP, commodity prices were on the driver’s wheel (+2%), whereas BCCh cut and the
accompanying narrowing of the interest rate differential had negative impact of 1%. The short-term FX models are
outlined in Appendix 1, together with up-to-date estimates.
2% 2%7%
19%
-1%
4%
20%
40%
9%
25% 21%32%
10%
36%42%
101%
6%
2%6%
18%
-10%
10%
30%
50%
70%
90%
110%
1M 3M 6M 12M
Commodity returns
Source: Bloomberg, Itaú
CRB FuturesBrent OilCopperIron OreSoybean
5.04.94.9
4.24.14.03.9
3.63.3
3.02.82.8
2.52.42.42.42.4
1.81.7
1.00.90.80.8
-0.5-1.5
-9.0
-10 -8 -6 -4 -2 0 2 4 6
NZDZARAUDNOKSEKCLPPLN
KRWBRLCADCHFTWDJPY
COPGBPCZKEURHUFSGDMYRCNYRUBIDRINR
MXNTRY
Monthly absolute FX returns
Source: Bloomberg, Itaú
%, (+) appreciation(-) depreciation
3%
0%
2%
28%
-2%
-11% -11%-12%
4%
0% 1%
11%
3%1%
5%
15%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1M 3M 6M 12M
Latam FX - spot retuns
Source: Bloomberg, Itaú
BRLMXNCLPCOP
13
15
17
19
21
23
25
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
BRL's volatility premium recedes
Source: Bloomberg, Itaú
BRL implied volatility Average volatility of large
EMs*
%, at-the-money(6-month)
* peers: Mexico, South Africa, Turkey and Russia
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Latam Fixed Income Strategy Monthly – January 27, 2017
We present below a qualitative discussion of each currency separately and summarize the key aspects of our
analysis.
BRL (Brazilian Real)
• Fundamentals: With a slightly more favorable external scenario for emerging-market countries, we now expect
less intense BRL depreciation. As U.S. interest rates increase (however gradually) throughout the year and
commodity prices drop from their current levels, the BRL is likely to depreciate from current levels: we are now
forecasting year-end exchange rates of 3.50/USD for both 2017 and 2018. This is in line with a scenario of a slight
increase in current account deficits, at levels that will not compromise external sustainability. Our scenario
assumes the approval of the Social Security reforms.
• Technicals: BCB retained a neutral stance over FX intervention in January. Despite some market talks that the
increase in the size of its daily rollover auctions (to USD 750 million from USD 600 million) was due to Chair
Yellen’s hawkish speech, we believe this was not the case. The new pace was simply due to a regional holiday in
São Paulo state on January 25, which would imply the expiry of roughly USD 1 billion of outstanding FX swaps
due in February under the previous offering (12,000 contracts per auction). In fact, Governor Goldfajn said in an
interview the BCB aims at keeping constant its short USDBRL position (roughly USD 26 billion). The technical
position is neutral. Using BM&F data on major players’ (domestic and foreign) USDBRL futures holdings, we see
that net long positions are essentially zero.
• Positioning: BCB’s decision to keep constant the volume of outstanding FX swaps contributed to the current
richness of the BRL; the tender is 8.3% stronger than the model estimate (1.6 standard-deviations). We see a
correction across the year towards 3.50/USD.
1%
-1%
2%
0%0%
1%
-1%0%
-1%
1%
1%
-1%
3%
1%
0%
1%
-2%
-1%
0%
1%
2%
3%
4%
5%
BRL COP CLP Latam
FX drivers: contributions to monthly returns
Source: Bloomberg, Itaú
(+) appreciation(-) depreciation
Commodity PricesInterest-rate differential
ResidualCDS Spreads
-20%
-15%
-10%
-5%
0%
5%
10%
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17
Deviations from model estimates
Source: Bloomberg, Itaú
%, deviation from short term estimate
(+) cheap currency (-) rich currency
BRL (-1.6 s.d. from m.p.)COP (0.5 s.d. from m.p.)CLP (-1.7 s.d. from m.p.)
s.d. = standard deviationm.p. = model projection
-8.3%
-4.2%
2.3%
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Latam Fixed Income Strategy Monthly – January 27, 2017
MXN (Mexican Peso)
• Fundamentals: We have revised our exchange rate forecast for 2017 upward (to 20.5, from 19.5), as the risk of
more protectionist policies in the U.S. has intensified. Recent concerns that the U.S. administration might disrupt
FDI inflows into Mexico and adopt more-protectionist trade policies have fueled the MXN’s volatility.
• Technicals: The Foreign Exchange Commission (formed by the Banxico and the Ministry of Finance) sold USD 2
billion in the spot market in the first week of the year without meaningful impact on the MXN. In its statement
about the decision, the FX Commission mentioned that it acted to mitigate volatility, rather than to defend a
specific exchange-rate level. IMM data shows the technical position remains skewed towards bearish territory.
• Positioning: The NAFTA notification carried out by President Trump’s government was already priced-in the
MXN. The currency’s short-term performance will likely be influenced by the development of the negotiations.
Looking further ahead, the tax reform debate will enter the spotlight and signs of the passing of a “border tax
adjustment” are bound to fuel the MXN’s volatility. Be that as it may, it is important to distinguish noise, which will
likely remain high at this early stage, from actual steps.
-15
-10
-5
0
5
10
15
20
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17
BRL: technical position -USD futures (BM&F)
Source: Bloomberg, Itaú
Institutional investors (nationals + foreigners)
USD billion (+) long USDBRL(-) short USDBRL
Source: Bloomberg, Itaú
-100
-80
-60
-40
-20
0
20
40
60
80
100
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
MXN: technical position - CME futures
Source: IMM, Itaú
Net position (non-commercial)
in thousand contracts(+) long MXN (-) short MXN
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Latam Fixed Income Strategy Monthly – January 27, 2017
CLP (Chilean Peso)
• Fundamentals: The prolonged economic weakness of the Chilean economy and accompanying deterioration of
the sovereign balance sheet led Fitch Ratings to revise the outlook to negative from stable. Afterwards, Standard
& Poor’s reaffirmed its AA- long-term foreign currency rating for Chile, while also revising the outlook to negative
from stable. The agency notes that the outlook revision reflects the risk that prolonged low economic growth could
translate into larger fiscal deficits than currently projected by it, leading to continued increase in government debt.
Even though we acknowledged a downward bias on our 1.5% GDP estimate for 2016 as well as on the 2%
recovery expected for this year, a sovereign downgrade remains outside the realm of our baseline scenario.
• Technicals: The technical position in the formal FX derivatives suggests market sentiment towards the CLP
remain upbeat. Looking at the notional amount outstanding of offshore investors, the volume of long USDCLP
positions are close to the 6-month median.
• Positioning: The copper rally pushed the CLP to overbought levels, according to our numbers. The Peso is 4.2%
stronger than the estimate, meaning a 1.7 standard deviations gap. This deviation does not provide much
opportunity to go long USDCLP, since we expect stability in Chinese growth in 1Q17, which could sustain the
copper bullish momentum and keep the CLP rich in the short term.
COP (Colombian Peso)
• Fundamentals: Legislators passed a modified tax-reform bill after discussions in the two houses of Congress.
The bill has undergone changes from the initial version submitted in October, but succeeds in raising revenue to
partially make up for the loss of oil income and will help compliance with the fiscal rule. By 2022, the expected
additional tax revenue will be around 1% less than planned in the initial proposal. Nevertheless, the reform would
help hold off fiscal concerns for the time being. This reform will likely ease the rating-downgrade risk in the short
term (Colombia currently holds a rating one notch above the minimum investment-grade level). In fact, S&P
reaffirmed, Colombia’s rating at BBB but maintained a negative watch, while Fitch would visit the country later in
the year before pronouncing itself on a revised outlook. In the medium term, we underscore that either an
expenditure adjustment or further reform will be necessary to ensure fiscal sustainability.
-12
-11
-10
-9
-8
-7
-6
-5
-4
May-16 Jul-16 Sep-16 Nov-16 Jan-17
CLP: technical position -formal FX derivatives market
Source: BCCh, Bloomberg, Itaú
Offshore investors
USD Billion
(+) long CLP (-) short CLP
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Latam Fixed Income Strategy Monthly – January 27, 2017
• Positioning: The estimates from our FX model suggest the COP is a tad oversold. The current prices (as of
January 23), imply that it is 2.3% weaker than the fair-value. Though this deviation is statistically equal to zero, we
do have a constructive view on the COP. The moderation of the external current-account deficit and the timely
approval of key reforms ground our positive assessment of the Peso.
2) Rates
Overview
Long U.S. Treasuries halted the post-election widening trend in mid-December, as forwards (5y5y) reached the 3%
long-run median Fed guidance. Likewise, 5y5y implied inflation already stabilized a touch higher than the 2% inflation
target, suggesting that further upside in U.S. rates may be circumscribed to the front end.
In our revised U.S. scenario, we anticipate a decline in the unemployment rate to 4.3% by 4Q17 (20bps below the
FOMC’s December forecast) and see the balance of risks tilted to the downside given that business investment may
spur stronger payroll growth. We now forecast three Fed rate hikes in 2017 (from two previously) and continue to
expect another four hikes in 2018. A more preemptive Fed seems likely to mitigate the risk of a sharper
unemployment rate undershooting of the NAIRU over the next few years. Stronger activity data in the U.S. may lead
to an upward re-pricing of the odds of a FOMC hike in March and consequently put some pressure on LatAm yields.
Notwithstanding, we think Brazilian rates will likely outperform ahead, given the country’s improved external
fundamentals (e.g. the current-account deficit is the narrowest in LatAm).
Brazil Rates
As we expected, BCB reduced the Selic policy rate by 75bps at its January meeting. The communication revealed
that falling inflation has created an opportunity to front-load the monetary easing cycle. In the accompanying
communiqué, the board went as far as to signal the possibility of at least one more 75-bp cut in February - but did not
commit to delivering it. In our view, rising unemployment will continue to help bring down inflation, and given no
further uncertainty abroad, this will likely allow the central bank to maintain the new easing pace over the next
meetings. We thus expect two additional 75-bp cuts at the February and April meetings.
2
14
0
18
-1
-21
-7
10
-3
10
-5
-24
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
USA Eurozone Japan UK EMs Latam
Change in nominal yields (10-year)
Source: Bloomberg, Itaú
YTDLast month
bps
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Forwards at the long-run guidance
Source: Bloomberg, Itaú
U.S. Treasuries (5y5y)Implied inflation (5y5y, rhs)
%
USD p. b.
%
Page 8
Latam Fixed Income Strategy Monthly – January 27, 2017
Medium-term inflation expectations overall converged to the 4.5% target. The latest Focus survey (as of January 20)
shows that two year-forward mean forecasts are only 3bps higher than the target. Asset-implied expectations are
currently running below the survey-based measure. In the long term (five years forward) the breakeven’ premium
over the Focus survey is roughly in line with the historical average (not including 2016). In fact, the average of 5-year
economists’ projections decreased further and is some 12bps below 4.5%. If inflation comes in below the center of
the target range this year, it may create an opportunity to discuss reducing the target (which must be set prior to June
30, according to the law) for the years ahead.
After a major re-pricing following the first Copom of the year as well as January IPCA-15, our analysis shows that DI
futures prices-in between 300bps and 350bps of rate cuts for 2017, broadly aligned with our scenario. We believe the
Selic rate is likely to reach 9.75% at YE17 (previously, we saw it at 10%), as the inflationary scenario is more benign
than we anticipated. Looking at 2018, we believe that the continued downward trend in inflation and our projection of
still-high levels of idle capacity in the economy are consistent with further interest rate cuts: we project a Selic rate of
8.50% at the end of 2018. We underscore that BCB’s guidance so far is consistent with a front-loading of the
monetary easing cycle but not, in principle, with a change in the total budget for monetary loosening.
250
260
270
280
290
300
310
320
330
10.5
10.7
10.9
11.1
11.3
11.5
11.7
11.9
12.1
12.3
12.5
Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
Source: Bloomberg
Brazilian CDS x NTN-F 2025
% p.a. bps
CDS Spreads (rhs)NTN-F 2025
250
260
270
280
290
300
310
320
330
5.3
5.4
5.5
5.6
5.7
5.8
5.9
6.0
6.1
6.2
6.3
Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
Source: Bloomberg
Brazilian CDS x NTN-B 2055
% p.a. bps
CDS Spreads (rhs)NTN-B 2055
4.53%
4.37%4%
5%
6%
7%
8%
9%
10%
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Breakeven inflation vs. inflation forecasts (2-year)
Source: Bloomberg, BCB, Itaú
Breakeven (NTN-Bs, 1y1y)Survey Forecast (Focus, 2y)
% p.a.
avg. premium (2010-2015) = 0.62%
5.29%
4.38%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Breakeven inflation vs. inflation forecasts (5-year)
Source: Bloomberg, BCB, Itaú
Breakeven (NTN-Bs, 4y1y)Survey Forecast (Focus, 5y)
% p.a.
avg. premium (2010-2015) = 0.99%
Page 9
Latam Fixed Income Strategy Monthly – January 27, 2017
In all, we believe the current pricing is broadly consistent with the short-term path of monetary policy of our baseline,
given the available information. Putting it differently, the sizable premium previously embedded in the curve was
erased. Yields would have room to narrow further from current levels only if the market re-evaluates its expectation
for the terminal-Selic rate - something that requires the passing of structural fiscal reforms. The Lower House of
Congress will likely approve the proposed Social Security reforms, which are critical for achieving future compliance
with the spending cap, by the end of 2Q17.
Regarding the back end, we estimate that the 5y5y forwards price in a long-term Selic rate of around 11.3%, roughly
80bps above our theoretical terminal-rate estimate. This calculation is based on the assumption that the real U.S.
terminal rate is 1.0%, consistent with the long-term median “dot” of the December SEP1. Additionally, we set inflation
at the 4.5% target (a conservative estimate, given that some market participants are debating the possibility of a
reduction in the inflation target) and use the 10-year CDS spread (around 340bps) as a proxy for long-term Brazilian
country risk. Finally, we add a historical term premium estimate to arrive at an upper bound theoretical value of
10.5%.
1 Summary of Economic Projections.
7%
8%
9%
10%
11%
12%
13%
14%
Jan-17 Jan-18 Jan-19 Jan-20 Jan-21
Forward curve pricing (DI Futures) vs. analysts' projections
Source: Bloomberg, BCB, Itaú
Market pricingMarket pricing (TP-adjusted*)
Itaú forecastConsensus forecast
Source: Bloomberg, BCB, Itaú
% p.a.
* TP = Term-premium (historical)
-302
-20
-349
-59
-408
-36
-450
-400
-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%
3.4%
4.5%
1.6%
11.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Brazil
Theoretical value for terminal market rates in Brazil
Source: Bloomberg, Itaú
Total:10.5%
p.a. U.S. real terminal rateCDS spread (10-year)
Domestic inflation mid-targetTerm premium (terminal)
Terminal rate expectations (5y5y)
Page 10
Latam Fixed Income Strategy Monthly – January 27, 2017
Non-Brazil LatAm rates: Mexico, Chile and Colombia
The past 30 days saw diverging trends in LatAm risk. Chilean CDS spreads only accompanied the overall movement
in EMs. As per local rates, the Chilean curve bull-steepened slightly, consistent with BCCh’s easing guidance and
disappointing 4Q16 activity data. In turn, Colombia’s credit risk improved over the period, echoing the approval of the
structural tax reform.
On the other hand, Mexican risk premium widened amid the uncertainties surrounding the future of the U.S.-Mexico
trade relationship. We’ll discuss below the risks affecting Mexican assets rates.
The inflation outlook is heterogeneous as well. Chilean one year-forward inflation expectations fell below the 3%
target. As we’ll discuss in Chile’s subsection, we also expect inflation to remain within the lower half of the central
bank’s 2%-4% tolerance range throughout 2017. On the other hand, expectations in Mexico rose strongly, amid the
compounding of inflationary shocks (see below).
130
81
144
186
134
85
157165
126
83
174
153
50
100
150
200
EM
s
Ch
ile
Me
xic
o
Co
lom
bia
Credit default swaps (5-year)
Source: Bloomberg, Itaú
As of January 231 month before6 months before
bps
28 27
19 18
8
-20 -22
-14-11
-15
5
9
-7
-21
5
-30
-20
-10
0
10
20
30
40
1Y 2Y 5Y 10Y 20Y
Monthly changes in swap rates
Source: Bloomberg, Itaú
MexicoChile
Colombia
bps
4.68
4.25
2.90
2.5
3.0
3.5
4.0
4.5
5.0
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Inflation expectations (1 year forward)
Source: Latin Consensus , Banxico, Banrep, BCCh, Itaú
% p.a.
MexicoChile Colombia
upper bound (4%)
target (3%)
* latest data derived from Latin Consensus
4.00
3.00
3.59
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
4.5
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Inflation expectations(2 years forward)
Source: Latin Consensus , Banxico, Banrep, BCCh, Itaú
% p.a.
MexicoChile Colombia
upper bound (4%)
target (3%)
* latest data derived from Latin Consensus
Page 11
Latam Fixed Income Strategy Monthly – January 27, 2017
Another symptom that Mexican assets are trading on stress-mode is the rates-FX correlation; the association
estimated on a 100-day window is close to unity even for longer rates (10-year). Accordingly, 5y5y forwards are
trading around 8.0%, touching the upper bound of our theoretical terminal rate proxy2.
We now analyze the current pricing and eventual trading opportunities in each market separately:
MEXICO
As far as monetary policy is concerned, Mexico can be regarded as an outlier within LatAm. Banxico is worried about
the occurrence of simultaneous shocks, which could derail inflation expectations. Therefore, we believe that the
Central Bank will tighten monetary policy more aggressively than we were previously expecting: we see a 50-bp hike
in the next meeting, followed by three 25-bp movements before the end of this year.
We view the front end-pricing of the TIIE swaps curve for 2017 as inconsistent with our Mexico’s baseline. Indeed the
curve sees excessive tightening for 2017: depending on the term-premium assumption, there are between 163bps
and 177bps of rate hikes implied in the front end. For next year, there are some 50bps in monetary easing (after
filtering out the term premium), in line with our scenario; we see room for two 25-bp rate cuts, amid lower inflation
and a better-behaved exchange-rate. Thus, we see value in receivers in the very front end (up to the 1-year), in order
to profit from a correction of the implied monetary policy path for the next 12 months.
2 We base our steady-rate U.S. real rate proxy on the December Summary of Economic Projections. The terminal median “dot”
implies a real rate of 1.0%. We also set the expected terminal inflation of each country to their inflation targets (all have a 3% target). To control for country risk, we use the 10-year CDS spreads, which are running around 240bps for Mexico, 130bps for Chile and 230bps for Colombia.
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17
Rates-FX correlation in Mexico
Source: Bloomberg, ItaúSource: Bloomberg, Itaú
Correlation coefficient (100 days)
1Y TIIE Swap2Y TIIE Swap5Y TIIE Swap10Y TIIE Swap
critical level
1.0% 1.0% 1.0%
2.4%1.3%
2.3%
3.0%
3.0%
3.0%
1.7%
1.0%8.0%
4.5%
7.4%
0%
2%
4%
6%
8%
10%
12%
14%
Mexico Chile Colombia
Theoretical value for terminal market rates in Latam
Source: Bloomberg, Itaú
U.S. Real terminal rateCDS spread (10-year)
Domestic inflation mid-targetTerm premium (terminal)
Terminal rate expectations (5y5y)
% p.a.
8.1%
6.3%
8.0%
Page 12
Latam Fixed Income Strategy Monthly – January 27, 2017
Turning to the back end, the unwind of gasoline prices’ subsidies is positive, since, according to the government, the
benefit would have generated fiscal expenditures as high as 1% of GDP per year. Thus, the frontloading of the
adjustment of gasoline prices will contribute to the achievement of the 0.4% primary surplus target in 2017, rendering
a rating downgrade less likely. Be that as it may, the political landscape will be the key risk factor to monitor. The
markets will watch the regional elections’ outcome (June 2017) in order to gauge the chances of each party in the
presidential election of 2018 and, importantly, the likelihood that the next administration will maintain sound economic
policies. In all, the long end seems too-risky for us, given the non-traditional uncertainties affecting the Mexican
economy in 2017.
The same holds for implied inflation. Even though breakevens escalated on the compounding of multiple one-off
inflationary shocks (15% rise in the liquefied petroleum gas price, 10% minimum wage adjustment, hikes in 14 state
taxes, higher electricity prices and the hefty weakening of the MXN), we prefer to wait for more information on the
future U.S. policies. Additionally, it will be key to monitor the domestic scenario in order to gauge if Banxico will
manage to avert significant second-order effects of the inflationary shocks, particularly over inflation expectations.
5.25%
5.75%
6.25%
6.75%
7.25%
7.75%
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Forward curve pricing (TIIE swaps) vs. analysts' projections
Source: Bloomberg, Latin Consensus, Itaú
% p.a.
* TP = Term-premium (historical)
Market pricingMarket pricing (TP-adjusted*)Itaú forecastConsensus forecast
162
-14
149
-43
104 103
-100
-50
0
50
100
150
200
2017YE 2018YE
TIIE swaps: implicit rate hikes by...
Source: Bloomberg, BCB, Itaú
bps
* TP = Term-premium
Unadjusted for TP*Adjusted for TP*Analysts' consensus
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Mexican breakeven inflation rates (spot)
Source: Bloomberg, Itaú
2-year5-year
% p.a.
lower bound
upper bound
target
Page 13
Latam Fixed Income Strategy Monthly – January 27, 2017
CHILE
As expected, BCCh cut its monetary policy rate by 25bps to 3.25% in January, after being on hold for a full year. The
decision follows disappointing November activity and inflation ending 2016 below expectations. The press release
announcing the decision retained the same loosening bias, thus supporting our expectation of more easing ahead.
The latest IPoM indicate a cycle of only 50bps, but we anticipate further monetary easing given the expectations of
weak growth and inflation set to hover within 2-3% for a significant part of 2017.
The market pricing converged to our scenario, virtually erasing the 50-bp gap between the cuts implied in Camara
swaps for 2017 and our call that BCCh will take the policy rate to 2.25% (i.e. a 100-bp easing cycle). As of January
23, the curve sees between 97-107bps in cuts for the year – pending on the term premium assumption. Looking to
2018, a partial easing of the monetary stimulus would take place later in 2018 (we see the policy rate ending next
year at 3.25%), as activity picks up and inflation gradually returns to the center of the target range. The curve prices-
in just one 25-bp hike, suggesting some upside for the 2-yr/3-yr sector.
On a separate note, the senate approved Rosanna Costa as the replacement for Rodrigo Vergara in BCCh’s board.
She will fill in the remainder of Vergara’s period as board member (until December 2018). She was head of the
Budget Office at the FinMin during the Piñera administration (2010-2014) and currently is deputy director of think-
tank Libertad y Desarrollo. She also belongs to the National Council for Productivity. Until 1993, she served as an
economist at the Central Bank of Chile, and between 1993 and 2010 she conducted research on fiscal matters,
government modernization, and capital markets. Rosanna Costa is an economist from the Catholic University in
Chile.
COLOMBIA
The minutes of the December meeting, show that a majority of the board believes that the conditions are sufficient to
reduce the contractionary policy stance. So, although we think Banrep will proceed cautiously with rate cuts, we now
see the policy rate ending this year at 5.5% (6.0% in our previous scenario), implying 200bps in rate cuts for this
year. The IBR swaps curve currently prices in less than 175bps in rate cuts (assuming our term premium
hypothesis). For 2018, there is a divergence as well: the curve implies 45-90bps in cuts whereas we see the central
bank taking the policy rate to 4.50% (i.e., further 100bps in cuts).
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
Forward curve pricing (Camara swaps) vs. analysts' projections
Source: Bloomberg, Latin Consensus, Itaú
% p.a.
* TP = Term-premium (historical)
Market pricingMarket pricing (TP-adjusted*)Itaú forecastConsensus forecast
-92
46
-102
25
-30
21
-120
-100
-80
-60
-40
-20
0
20
40
60
2017YE 2018YE
Camara swaps: implicit rate hikes by...
Source: Bloomberg, BCB, Itaú
bps
* TP = Term-premium
Unadjusted for TP*Adjusted for TP*
Analysts' consensus
Page 14
Latam Fixed Income Strategy Monthly – January 27, 2017
We believe the case for receiving the back end has strengthened in recent days. Although the tax-reform bill has
undergone changes from the initial version submitted in October, it succeeds in raising resources to partially make up
for the loss of oil revenue thus helping to comply with the fiscal rule and increased the odds of retaining the sovereign
investment grade. In fact, S&P ratings affirmed Colombia’s BBB rating and kept negative the outlook. According to
the agency “the negative outlook reflects the risk that we could lower our ratings on Colombia if its external balance
sheet or its fiscal debt burden do not improve within the next 18 months”. We read this as a positive development,
given that in late 2016 part of the market was considering a one-notch downgrade as the baseline scenario. Some
even saw the risk of a downgrade with the maintenance of a negative outlook. The affirmation by S&P underscores
that, even though the recently approved tax reform was diluted, it managed to ease concerns over fiscal
sustainability for now. In addition, the improvement of the (still-high) current account deficit probably contributed to
the rating decision. Another piece of evidence that market sentiment towards Colombia improved was the high
demand observed for Colombia’s international bond issuance in January. According to the Finance Ministry,
Colombia placed USD 2.5 billion: USD 1 billion are due in ten years and the remaining regard the reopening of the
2045 Bono Global (issued in Jan/2015).
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
Forward curve pricing (IBR swaps) vs. analysts' projections
Source: Bloomberg, Latin Consensus, Itaú
% p.a.
* TP = Term-premium (historical)
Market pricingMarket pricing (TP-adjusted*)
Itaú forecastConsensus forecast
-149
-49
-177
-94
-160
-238
-300
-250
-200
-150
-100
-50
0
2017YE 2018YE
IBR swaps: implicit rate hikes by...
Source: Bloomberg, BCB, Itaú
bps
* TP = Term-premium
Unadjusted for TP*Adjusted for TP*Analysts' consensus
Page 15
Latam Fixed Income Strategy Monthly – January 27, 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.
0.170.12 0.11
-0.23
0.01
-0.21
0.28
0.08 0.07
-0.48 -0.49
-0.37
-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 Dec-16)
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
Jan-15 Jul-15 Jan-16 Jul-16 Jan-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
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
MXN vs. projection
Source: Bloomberg, Itaú
USD/MXN
Actual levelModel projectionInterval: +/- 1 std. dev. (6-year window)
Page 16
Latam Fixed Income Strategy Monthly – January 27, 2017
Appendix 2: CDS valuation model - Brazil
Our valuation model for Brazilian 5-year credit spreads was introduced in the October issue of our Monthly. 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
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
CLP vs. projection
Source: Bloomberg, Itaú
USD/CLP
Actual levelModel projectionInterval: +/- 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
Jan-15 Jul-15 Jan-16 Jul-16 Jan-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
Jan-06 Nov-07 Sep-09 Jul-11 May-13 Mar-15 Jan-17
Model adherence to the data
Source: Bloomberg, Itaú
CDS spreads (5-year)Fitted values
bps
-3
-2
-1
0
1
2
3
Jan-06 Nov-07 Sep-09 Jul-11 May-13 Mar-15 Jan-17
CDS model signals
Source: Bloomberg, Itaú
Component not explained by the model (Z Scores)
One standard devation
Page 17
Latam Fixed Income Strategy Monthly – January 27, 2017
Appendix 3: Itaú macro projections (vs. consensus)
For a thorough macroeconomic discussion, see LatAm Macro Monthly – Stronger global growth, not in LatAm (yet),
January 20
Itaú Itaú Survey Itaú Survey
Real GDP growth - % -3.8 1.0 0.5 4.0 2.2
CPI - % 10.7 4.7 4.7 4.0 4.5
Monetary Policy Rate - eop - % 14.25 9.75 9.50 8.50 9.38
BRL / USD - eop 3.96 3.50 3.40 3.50 3.50
Itaú Itaú Survey Itaú
Real GDP growth - % 2.6 1.6 1.8 2.1 2.3
CPI - % 2.1 4.6 4.4 3.3 4.0
Monetary Policy Rate - eop - % 3.25 7.00 6.79 6.50 6.78
MXN / USD - eop 17.40 20.50 21.04 19.50 20.84
Itaú Itaú Survey Itaú Survey
Real GDP growth - % 2.3 2.0 2.1 2.5 2.8
CPI - % 4.4 2.8 3.0 3.0 3.0
Monetary Policy Rate - eop - % 3.50 2.50 2.95 3.25 3.46
CLP / USD - eop 709 685 682 695 682
Itaú Itaú Survey Itaú Survey
Real GDP growth - % 3.1 2.3 2.4 2.8 3.1
CPI - % 6.8 4.3 4.5 3.5 3.9
Monetary Policy Rate - eop - % 5.75 5.50 6.01 4.50 5.23
COP / USD - eop 3,175 3,080 3,050 3,175 3,033
Source: Itaú, Latin Consensus Forecasts, BCB, Banxico, BCCh, Banrep, Bloomberg
2018F
2018F
2018F
2018F
MACROECONOMIC FORECASTS
2017F
2017F
MEXICO
COLOMBIA
CHILE
2017F
2017F
2016
2016
2016BRAZIL
2016
Page 18
Latam Fixed Income Strategy Monthly – January 27, 2017
Appendix 4: LatAm rates trackers (Updated as of January 26, 2016 – closing prices)
Brazil
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(BRL Billions) (Years) (% a.a.)
CDI RATE - - 12.88 -75 -100 -125 -125
Feb-17 0.0 12.88 -46 -72 -103 -192
Apr-17 - 0.2 12.49 -47 -89 -119 -246
Jul-17 - 0.4 11.84 -57 -114 -153 -330
Oct-17 - 0.7 11.33 -57 -126 -172 -401
Jan-18 - 0.9 10.96 -61 -131 -184 -455
Jul-18 - 1.4 10.59 -62 -126 -189 -529
Jan-19 - 1.9 10.47 -61 -108 -173 -568
Jul-19 - 2.4 10.50 -63 -91 -159 -581
Jan-20 - 2.9 10.58 -62 -78 -144 -581
Jul-20 - 3.4 10.68 -65 -66 -132 -576
Jan-21 - 3.9 10.73 -65 -54 -120 -571
Jan-23 - 5.9 10.96 -64 -35 -100 -563
Jan-25 - 7.9 11.05 -61 -29 -94 -569
Jan-26 - 8.9 11.07 -60 -30 -95 -578
Jan-27 - 9.9 11.11 -59 -32 -93 -582
Apr-17 69.6 0.2 12.49 -35 -90 -118 -230
Jul-17 60.1 0.4 11.81 -56 -117 -158 -317
Oct-17 63.6 0.6 11.32 -57 -129 -173 -386
Jan-18 62.0 0.8 10.91 -63 -140 -189 -442
Apr-18 68.1 1.0 10.76 -59 -132 -190 -477
Jul-18 57.0 1.3 10.60 -59 -128 -190 -514
Oct-18 52.2 1.5 10.51 -61 -137 -186 -
Jan-19 90.9 1.7 10.48 -62 -112 -175 -547
Jul-19 36.7 2.2 10.53 -59 -91 -161 -554
Jan-20 68.1 2.6 10.59 -63 -82 -146 -560
Jul-20 70.1 3.1 10.73 -63 -66 -130 -
Jan-18 15.3 0.8 10.93 -65 -137 -185 -436
Jan-19 11.2 1.6 10.37 -71 -122 -180 -537
Jan-21 98.9 3.0 10.70 -65 -49 -120 -552
Jan-23 97.4 4.1 10.90 -58 -30 -95 -548
Jan-25 65.5 5.0 10.91 -54 -23 -80 -560
Jan-27 40.5 5.8 10.95 -48 -32 -85 -577
May-17 46.6 0.3 5.79 -66 -106 -95 -26
Aug-18 60.5 1.4 5.69 -29 -54 -78 -35
May-19 69.9 2.0 5.65 -30 -45 -68 -67
Aug-20 59.2 3.0 5.68 -32 -33 -51 -102
May-21 68.9 3.6 5.71 -33 -29 -48 -144
Aug-22 98.9 4.4 5.77 -29 -21 -35 -151
May-23 50.5 5.0 5.72 -31 -21 -34 -163
Aug-24 51.5 5.7 5.66 -33 -21 -36 -172
Aug-26 25.1 6.8 5.68 -33 -18 -28 -177
Aug-30 32.7 8.8 5.56 -29 -5 -21 -174
May-35 56.9 10.8 5.60 -31 -14 -25 -193
Aug-40 44.2 12.2 5.55 -30 -13 -21 -192
May-45 82.6 13.4 5.64 -24 -9 -20 -190
Aug-50 136.3 14.2 5.59 -29 -11 -17 -192
May-55 21.4 15.1 5.55 -30 -5 -20 -195
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 19
Latam Fixed Income Strategy Monthly – January 27, 2017
Mexico
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(MXN Billions) (Years) (% a.a.)
TIIE Rate - - 6.15 4 103 156 259
3-month - 0.2 6.46 24 123 177 283
6-month - 0.5 6.79 28 142 187 307
9-month - 0.7 6.99 26 152 190 319
1-year - 1.0 7.19 28 162 196 332
2-year - 1.9 7.41 25 170 191 318
3-year - 2.7 7.53 17 170 184 292
4-year - 3.5 7.63 17 170 182 270
5-year - 4.2 7.75 18 171 185 253
7-year - 5.4 7.93 - 169 187 219
10-year - 7.0 8.13 - 169 189 194
15-year - 9.0 8.32 14 158 177 164
20-year - 9.8 8.49 16 156 179 149
30-year - 10.8 8.69 - 159 184 149
Jun-17 114.7 0.4 6.47 28 136 162 269
Dec-17 159.1 0.8 6.45 34 141 173 -
Jun-18 211.1 1.3 6.71 16 134 153 231
Dec-18 210.0 1.7 6.78 10 135 143 214
Dec-19 169.5 2.6 6.95 9 126 147 189
Jun-20 96.2 2.9 7.06 14 132 154 185
Jun-21 269.9 3.7 7.24 18 138 158 174
Jun-22 115.4 4.4 7.35 17 143 160 163
Dec-23 93.1 5.2 7.45 21 145 163 152
Dec-24 238.2 5.6 7.50 15 143 161 151
Mar-26 107.1 6.7 7.57 14 142 160 138
Jun-27 86.5 7.1 7.68 19 142 160 134
May-29 93.1 7.7 7.81 23 142 163 128
May-31 137.8 8.5 7.94 26 143 166 123
Nov-34 100.7 9.4 8.04 30 143 164 121
Nov-36 61.3 9.4 8.07 31 144 167 118
Nov-38 105.6 10.0 8.09 27 143 165 117
Nov-42 147.6 10.8 8.05 26 138 162 109
Dec-17 111.6 0.9 0.99 -61 -18 -5 -58
Jun-19 160.7 2.3 2.17 -37 -12 27 -25
Dec-20 97.2 3.7 2.45 -22 3 34 -20
Jun-22 120.6 5.1 2.68 -22 9 34 -24
Dec-25 182.6 7.4 3.07 - 25 53 -10
Nov-35 122.1 13.0 3.71 -1 41 65 -1
Nov-40 247.5 15.4 3.82 2 42 64 -2
Nov-46 121.3 17.5 3.85 0 42 66 -2
Source: Bloomberg (BGN), Itaú
UD
IBO
NO
RE
AL
RA
TE
S
(basis points)
TII
E S
wa
ps
NO
MIN
AL
RA
TE
S
Page 20
Latam Fixed Income Strategy Monthly – January 27, 2017
Chile
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(CLP Billions) (Years) (% a.a.)
Interbank Rate - - 3.50 - - - 0
3-month - 0.2 3.10 -22 -38 -42 -52
6-month - 0.5 3.05 -18 -34 -47 -64
9-month - 0.7 3.00 -18 -35 -51 -77
1-year - 1.0 2.96 -17 -36 -53 -87
18-month - 1.5 2.97 -17 -31 -56 -96
2-year - 2.0 2.99 -15 -25 -49 -95
3-year - 2.9 3.20 -9 -11 -42 -85
4-year - 3.8 3.42 -6 -1 -29 -75
5-year - 4.6 3.63 -5 7 -18 -65
6-year - 5.4 3.78 -6 12 -13 -59
7-year - 6.2 3.93 -6 16 -8 -56
8-year - 7.0 4.05 -8 17 -5 -52
9-year - 7.7 4.15 -7 20 -1 -51
10-year - 8.3 4.22 -6 20 0 -46
15-year - 11.2 4.37 -10 19 -1 -40
20-year - 13.5 4.45 -9 20 -3 -44
Mar-17 170.2 0.0 3.05 - - - -98
Jan-18 450.0 1.0 3.31 - -20 - -74
Mar-18 344.1 1.0 3.31 - - - -75
Jan-19 290.0 1.9 3.31 -16 -22 -58 -86
Jan-20 762.5 2.8 3.58 - -3 - -68
Mar-21 700.0 3.9 3.68 -11 -13 -45 -
Jan-22 475.4 4.5 3.79 - -3 - -54
Jan-24 530.0 5.4 4.03 - - - -48
Mar-26 1,348.0 6.8 4.17 -19 -1 -24 -43
Jan-32 464.7 10.2 4.38 -17 -8 -35 -44
Jan-34 415.0 10.9 4.39 -14 -4 -34 -37
Mar-35 547.0 11.2 4.46 -7 0 -39 -36
Jan-43 1,176.3 14.0 4.60 -16 1 -22 -34
Jun-17 175.0 0.0 3.32 -6 -16 -33 -73
Mar-18 246.8 1.0 3.27 -14 -23 -44 -89
May-18 83.6 1.0 3.27 - -28 - -77
Jun-18 243.2 1.0 3.27 -16 -28 -48 -86
Jan-19 400.0 2.0 3.35 -13 -19 -48 -
Apr-20 450.0 2.9 3.60 -7 -8 -43 -66
Jun-20 900.0 2.9 3.56 -12 -14 -48 -71
Jul-20 450.0 2.9 3.41 -16 -25 -56 -86
Feb-21 470.0 3.7 3.81 - -2 - -49
Mar-22 350.0 4.5 3.78 - -2 - -55
Mar-23 245.0 4.9 3.88 -28 -3 -32 -52
May-17 202.5 0.3 1.76 - - - 106
Jul-17 326.2 0.4 1.40 27 -6 29 51
Jan-18 346.4 0.9 0.91 - - - 11
Mar-18 602.3 1.1 0.85 - -25 - -6
Jul-18 437.4 1.4 0.81 - -27 - -13
Aug-18 213.1 1.5 0.77 -19 -29 -31 -21
Oct-18 146.5 1.6 0.74 - - - -20
May-19 25.3 2.2 0.85 - - - -27
Feb-21 1,157.3 3.7 0.89 - -17 - -29
Mar-22 605.0 4.7 0.92 - -15 - -38
Sep-22 219.6 4.9 0.92 - - - -39
Mar-23 289.3 5.5 1.03 -23 -5 -23 -47
May-28 302.0 9.6 1.37 -12 4 -16 -30
Feb-31 736.5 11.5 1.49 -12 4 -18 -27
Feb-41 736.5 17.6 1.79 -9 16 -1 -11
Source: Bloomberg (BGN), Itaú
BC
P
NO
MIN
AL
RA
TE
SR
EA
L R
AT
ES
(basis points)
CA
MA
RA
Sw
ap
sB
TP
BC
U
Page 21
Latam Fixed Income Strategy Monthly – January 27, 2017
Colombia
Amount
Outstanding
Modified
DurationLast Price Δ1M Δ1Q Δ1H Δ1Y
(COP Billions) (Years) (% a.a.)
IBR Rate - - 7.14 0 -23 -21 160
3-month - 0.0 6.77 -15 -61 -64 66
6-month - 0.2 6.48 -15 -80 -102 13
9- month - 0.5 6.30 -6 -81 -113 -13
1-year - 0.7 6.17 -3 -77 -119 -29
18-month - 1.2 6.03 4 -62 -122 -49
2-year - 1.7 5.67 6 -48 -115 -76
3-year - 2.6 5.58 -5 -37 -109 -106
4-year - 3.4 5.64 -10 -32 -96 -123
5-year - 4.2 5.78 -13 -26 -88 -127
7-year - 5.7 6.01 -23 -23 -74 -145
8-year - 6.4 6.16 -21 -18 -68 -145
10-year - 7.6 6.38 -26 -15 -58 -144
12-year - 8.2 6.46 -28 -26 -59 -164
15-year - 9.0 6.58 -24 -17 -52 -186
Oct-18 9,678 1.5 6.23 -18 -16 -97 -136
Nov-18 10,233 1.7 6.10 -11 -19 -105 -134
Sep-19 13,740 2.3 6.24 -17 -28 -97 -163
Jul-20 19,472 2.8 6.31 -23 -34 -91 -173
May-22 18,256 4.1 6.39 -29 -40 -97 -223
Jul-24 26,890 5.2 6.61 -29 -34 -79 -204
Aug-26 18,481 6.6 6.77 - -49 -91 -228
Apr-28 13,804 7.5 6.98 -37 -46 -74 -236
Sep-30 14,500 8.3 6.94 -42 -46 -82 -250
Apr-19 9,909 2.1 2.03 -44 -76 -92 -99
Mar-21 14,329 3.7 2.46 -34 - -65 -124
Feb-23 14,548 5.1 2.79 -30 - - -87
Mar-33 8,664 12.2 3.48 - - - -105
Apr-35 3,296 12.2 3.50 -16 -4 -31 -
Source: Bloomberg (BGN), Itaú
(basis points)
IBR
Sw
ap
sU
VR
CO
LT
ES
RE
AL
RA
TE
SN
OM
INA
L R
AT
ES
Page 22
Latam Fixed Income Strategy Monthly – January 27, 2017
Appendix 5: Closed recommendations
Page 23
Latam Fixed Income Strategy Monthly – January 27, 2017
Relevant Information
1. This report has been produced by Itaú Corretora de Valores S.A (“Itaú BBA”), a subsidiary of Itaú Unibanco S.A., regulated by the Securities and Exchange Commission of Brazil (CVM),
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