24 Jul 2014
Look further a field and curve’s are steepening- BAML
FXStreet (Guatemala) - A research team at Bank of America Merrill Lynch said that they update our interest rate swap model for Brazil, Mexico and Chile.
Key Quotes
“The model estimates three-month-ahead equilibrium swap yield curves based on domestic macroeconomic and global financial fundamentals, which can then be compared to three-month forward market rates."
"Our forecast assumptions for global variables are that 10-year USD swap rates rise 15bp to 2.72% (UST at 2.60%), the 2y10y USD slope steepens to 195bp (from 190bp currently), the SP500 equity index rises to 1995, and the VIX volatility index stays at 11.70. Domestic macro assumptions are discussed below."
"Our model suggests interest rates in Brazil are about 40bp too low relative to equilibrium. In Mexico, short-term rates are about 30bp lower than fair value while long-term rates are close to 20bp higher than fair value."
"In Chile, the model estimates rates are too low, particularly in the front end. Our open trades are broadly in line with the model predictions - we recommend Jan16x21 CDI steepeners in Brazil; 2s10s TIIE flatteners in Mexico; and long 5y inflation breakevens in Chile."
Key Quotes
“The model estimates three-month-ahead equilibrium swap yield curves based on domestic macroeconomic and global financial fundamentals, which can then be compared to three-month forward market rates."
"Our forecast assumptions for global variables are that 10-year USD swap rates rise 15bp to 2.72% (UST at 2.60%), the 2y10y USD slope steepens to 195bp (from 190bp currently), the SP500 equity index rises to 1995, and the VIX volatility index stays at 11.70. Domestic macro assumptions are discussed below."
"Our model suggests interest rates in Brazil are about 40bp too low relative to equilibrium. In Mexico, short-term rates are about 30bp lower than fair value while long-term rates are close to 20bp higher than fair value."
"In Chile, the model estimates rates are too low, particularly in the front end. Our open trades are broadly in line with the model predictions - we recommend Jan16x21 CDI steepeners in Brazil; 2s10s TIIE flatteners in Mexico; and long 5y inflation breakevens in Chile."