20181101-法国巴黎银行-MX_Strategy__1y1y_TIIE_breaching_8.75__what_to_do__9页_928kb

Summary of "MX Strategy: 1y1y TIIE breaching $8.75%$ ; what to do?"

Core Content

This document is a strategy update from Banco BNP Paribas Brasil S.A. regarding the Mexican interest rate environment, particularly focusing on the TIIE (Tesobonos de Instrumento de Rendimiento Fijo) market. It outlines the firm's current market outlook, position adjustments, and future strategy based on the evolving political and economic landscape in Mexico.

Main Points

• Market Outlook: The firm has adjusted its market positioning due to the new Mexican administration's signals, which suggest a lack of support for further risk-taking in rates. This has led to a more cautious approach in the current environment.

• Position Adjustments:

  • The firm has sized down positions in:
    • TIIE 5y5y receivers (on a spread over 5y5y US swaps)
    • TIIE 5y against IBR 5y
    • The fly TIIE 2s5s7s (paying the belly)
  • The firm has maintained a position in 1y1y TIIE, extending the stop level to $9.25%$ and setting a new target of $7%$ from $6.50%$.

• Interest Rate Expectations:

  • The market is currently pricing in ~70 bp of rate hikes until the end of 2019.
  • The firm believes this expectation is overstated.
  • The firm avoids longer tenors due to the uncertainty surrounding the new administration's policies.

• Political Shift: Mexico is moving closer to the conventional Latin American market dynamics following the public consultation on the airport project. This signals a shift away from its previous status as a more integrated and open economy with strong global ties.

• Investment Strategy: In this uncertain environment, the firm prefers smaller and more tactical trades, moving away from structural, large positions. This is due to the increased risk of price volatility driven by news and speculation rather than macroeconomic fundamentals.

Key Information

• The firm's strategy reflects a reduction in risk exposure due to the new administration's stance and the broader economic uncertainty.
• The firm maintains a specific position in 1y1y TIIE despite the recent breach of the $8.75%$ stop level.
• The document also includes legal disclaimers and disclosures regarding the non-independence of the research, potential conflicts of interest, and the use of indicative prices and back-tested performance data.

Conclusion

The firm is adapting its strategy to the new political reality in Mexico, reducing positions in longer tenors and maintaining a more cautious stance. The outlook for the TIIE market remains uncertain, and the firm is focused on smaller, more tactical trades rather than large structural positions.

Legal Disclaimer

This document is a marketing communication and not investment research. It is intended for Professional Clients and Eligible Counterparties as defined by MiFID II. The information and opinions are based on public sources and may not be accurate or complete. The firm does not accept liability for any losses arising from the use of this document. Additionally, the document includes important disclosures for options, ETFs, and other securities, highlighting the risks involved and the firm's potential conflicts of interest.