20181217-法国巴黎银行-Mexico_IR__Revising_our_short-end_TIIE_strategy_9页_414kb

Summary of Mexico IR Strategy Revision (December 17, 2018)

Core Content

This document outlines a strategic revision in the short-end of the Mexican Interest Rate (IR) market, specifically in the TIIE (Tasa de Interés Interbancaria de Equilibrio) curve. The focus is on adjusting the investment strategy in response to the proposed 2019 budget from Mexico's Ministry of Finance, which emphasizes austerity and infrastructure development.

Key Messages

• Budget Outlook: Mexico's 2019 budget proposal highlights austerity, with a projected 1% primary surplus based on reasonable macroeconomic assumptions.
• Market Pricing: Despite political uncertainty, current market prices already reflect an adverse short-term scenario.
• Credit Rating Discount: Mexico is trading two notches below its current credit rating, indicating a premium in local interest rates and the MXN currency.
• Equity Valuation: Equity prices are at their lowest levels in recent years.
• Strategy Adjustment: The firm is revising its strategy in the short-end of the curve, closing a 1y1y receiver strategy and opening a new 2y receiver TIIE strategy.

Main Views and Strategy

• Current Strategy: The firm is closing its 1y1y receiver strategy, incurring a 125bp loss, due to its shorter duration.
• New Strategy: A new 2y receiver TIIE strategy is being initiated at 8.67%, with an allocation of USD35,000 DV01.
• Target and Stop-Loss: The target for the new strategy is 8.30%, with a stop-loss at 9.50%.
• Carry: The strategy offers a carry of +1.6bp/month.
• Market Expectations: The market is pricing in approximately 55bp of rate hikes until mid-2019, which the firm believes is overestimated.
• Tactical Approach: Given the uncertain environment, the firm prefers smaller, tactical positions and avoids longer tenors.
• Risk Consideration: The firm is concerned about potential bearish dynamics similar to Brazil's 2015-16 experience, where prices are volatile and influenced by news and speculation.

Key Information

• The document is a marketing communication and not independent investment research.
• It contains non-independent research and may be subject to conflicts of interest.
• The information is not investment advice, and users are advised to seek independent professional advice.
• The firm may have financial interests in the securities or issuers mentioned.
• Legal Disclaimer: The document is not a prospectus, nor is it intended to be used for investment decisions. It is for informational purposes only.
• Confidentiality: The information is provided on a strictly confidential basis and may not be copied or distributed without prior consent.
• Regulatory Context: The document is subject to various regulatory frameworks in the UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, and Switzerland.

Conclusion

The document reflects a strategic shift in the firm's approach to the Mexican IR market, emphasizing caution and tactical positioning in light of the proposed budget and market dynamics. It underscores the importance of understanding the risks and limitations of the information provided, and highlights the firm's potential conflicts of interest.