LatAm Weekly – April 12

Mexico - receive 3 year TIIE or pay 1Y1Y - receive 2Y2Y The next move of Banxico is likely to be the start of a monetary easing cycle. Growth in Mexico is slowing, and while inflation remains around the upper bound of the target band (4.0%), it has also been decelerating. Investors interested in receiving rates are worried about the high carry-roll down costs should prefer flatteners. Investors more directional-oriented should gradually build a receiver position in the belly of the curve. Brazil – The answer to the recent political noise = Short USDBRL 9-month NDF Lately, we have attended a series of meetings with high-ranking Brazilian government officials, top Brazilian economists, rating agencies and political analysts. The information gathered from these meetings and discussion is that the probability of pension reform passage is above 70% despite recurrent political noise. For instance accusations of corruption against the Lower House President Rodrigo Maia, who is a key player in order for the reform to reach safe harbor, are certainly muddying the waters. Also key congressional bloc called Centrao might be obstructing the vote on the Constitutional and Justice Committee, which is one of the two committees that the pension proposal has to clear before it is voted by the whole house.