20171106-法国巴黎银行-Mexico__Take_profit_on_1s3s_TIIE_steepener_7页_215kb

LATIN AMERICA STRATEGY Summary

Core Content

This document outlines a strategic recommendation from Banco BNP Paribas Brasil S.A. regarding investment strategies in Latin America, with a specific focus on Mexico's TIIE (Tesobonos Indexados al Tipo de Interés Efectivo) curve. The strategy involves adjusting the current position in the TIIE curve based on recent market developments and economic expectations.

Main Recommendations

• Close the 1s3s TIIE Steeper: The strategy team recommends closing the 1s3s TIIE steepener that was opened on 14 July 2017.
• Replace with an 18-Month TIIE Receiver: The steepener is being replaced with an outright receiver in the 18-month TIIE, with the following parameters:
  • Target: $6.50%$
  • Stop Loss: $7.80%$
  • DV01 Allocation: USD15k
• Profit Take: The team is recommending taking a profit of USD 225k (equivalent to 22bp) on the steepener.

Key Changes in Strategy

The decision to close the steepener and switch to a receiver is based on the following changes in market conditions:

• Domestic Political Developments: Recent political events in Mexico have altered the outlook for Banxico (Bank of Mexico) rate policy.
• US Growth Pick-Up: Increased US economic growth has impacted the relative value of the Mexican peso and interest rate expectations.
• MXN Decline: The depreciation of the Mexican peso has further influenced the strategy.
• Rate-Cut Expectations: The curve currently prices in 29bp of cuts by November 2018 and 50bp by June 2019. The strategy team believes this is too conservative, even when accounting for political risks.

Context of the Previous Steeper Strategy

The 1s3s TIIE steepener was recommended in July based on the following factors:

• The spread between the 3-year and 1-year TIIE was at an all-time low.
• The team expected Banxico to begin its rate-cutting cycle in Q1 2018.
• The assumption was that once Banxico had finished hiking rates, the front end of the TIIE curve would steepen.

Current Open Trades

The following positions are currently open:

1. Receive 5y5y TIIE Forward on a Spread Over US 5y5y Swaps

   • Allocation: USD 20k DV01
   • Current P&L: +7bp

2. Receive 5y TIIE Against Paying 5y Colombia IBR

   • Allocation: USD 20k DV01
   • Current P&L: +17bp

3. Receive 10y TIIE

   • Allocation: USD 15k DV01
   • Current P&L: -11bp

Strategy Team Members

Legal Disclaimer

• This document is non-independent research and is a marketing communication.
• It does not constitute investment research for the purposes of MiFID.
• BNP Paribas may have financial interests in the issuers or entities mentioned.
• The information is based on public sources and is not guaranteed for accuracy or completeness.
• The indicative prices and strategies are subject to change and may not reflect actual transaction terms.
• BNP Paribas may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• The document does not provide investment, tax, or legal advice.

Important Notes

• The information may include back-tested performance data, which is for illustrative purposes only.
• Simulated performance may not reflect real-world factors such as liquidity, fees, or transaction costs.
• No assurance is given that the indicated returns or results will be achieved.
• Past performance is not indicative of future results.

Jurisdictional Disclosures

• The document is intended for Professional Clients and Eligible Counterparties under MiFID.
• In the UK, the document is communicated by BNP Paribas London Branch.
• In the US, the report may be distributed by BNP Paribas Securities Corp. to institutional investors.
• In the Canada, the information is not intended to be construed as a prospectus or investment advice.
• In the Switzerland, the document is for Qualified Investors only.