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Banorte Believe Mbonos Have Limited Further Upside

MEXICO
  • Given the current outlook and high uncertainty regarding the timing of Fed rate cuts, Banorte believe Mbonos have limited room for further gains. Nevertheless, they believe Mbonos Mar’26 and Sep’26 stand out with relatively cheap valuation when adjusting yield for duration.
  • Despite this, for tactical purposes, Banorte prefer relative value strategies biased towards a steeper curve, as the negative carry and Banxico’s gradual approach result in an unattractive risk/reward to establish receiver positions.
  • In FX, Banorte reiterate their view of buying USDMXN around 16.50. They expect the currency to remain resilient this quarter and to regain more volatility in the second half of the year. The market does not reflect any significant premia ahead of the election, as evidenced by the short-term implied volatility performance.
  • Meanwhile, the attractive carry will remain as a material anchor, benefiting from the market’s more hawkish perception of Banxico and the stabilization (and compression in short-term maturities) of the currency’s volatility structure. Banorte also see shorting EUR/MXN as more attractive, particularly if the pair revisits 18.50, still convinced of an ECB cut next week.
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