COP – The main view from our call earlier this morning was stabilization after initial knee-jerk move. We might see a move lower in the front-end cross currency basis if local bank USD balance starts to liquidate. Any headlines from Bonilla will provide more insights. Our local traders saw two-way flows in large sizes mainly from offshore names, while some locals were sellers. USDCOP is currently trading around 4650 level, down ~2.6% as we go to print.
We are closing our short CLPCOP trade as the position traded through our trailing stop level (5.76) (see: Latam FX: Short
CLPCOP, dated 3 April). We exit the position at 5.83 booking a gain of 0.05% (USD 5k). The reversal of the position is
happening on the back of the unexpected departure of the Minister of Finance. Market reaction is also exacerbated by a
heavy long positioning in Colombia’s local market (Coltes and COP).
As long as two key factors in our rationale remain valid (low likelihood of market-disruptive reforms and a relatively
market-friendly pension reform proposal), we think the market will find Colombian assets attractive again at some point.
We will keep an eye on how the situation evolves in order to find new opportunities in COP.
Despite GDP miss, USTs bear-flatten as core PCE accelerates; Mega-cap tech spearheads broad US equity rally; Buoyant risk appetite weighs on safe haven currencies; Fed’s H.4.1 shows second straight rise in emergency lending facilities; JGBs are resilient before BoJ MPM; US 10y at 3.520% (+7.2bp).
Latin America:
Latam currencies strengthened, except for COP, which digested recent cabinet changes that included a finance minister change. COP depreciated 2.9% to 4656, while COPxIBR local rates rose 20-30bp across most tenors from 1y onward. The 10y IBR yield ended nearly 34bp higher at 9.06%.
Currencies and local yields in the rest of Latam outperformed, despite mild dollar strength and higher UST yields. The biggest divergence was in Brazil. BRL appreciated by 1.3% to 4.98 while DIs beyond January 2026s rallied by 5-10bp; January 2031 DIs rallied 9bp to 12.22%, while January 2025 DI yields ended 6bp higher at 11.91%. MXN rallied 0.5% to 18.05 while the 5y TIIE rate rose by 3bp to 8.53%. CLP rallied 0.4% to 802, while the 5y CLPxCAM rate rose 5bp to 5.78%. PEN ended the session 0.6% higher at 3.72, while PeruGB 2029 yields ended 3bp higher at 7.08%.