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BBVA Expect Overtly Negative Reaction To Pension Headline

PERU
  • BBVA believe the initial headline reaction is likely to be overtly negative in local markets, causing a short-term jump in longer-dated yields and may also provide a short-term boost to the PEN on the back of the potential repatriation of offshore assets. The Sol was the underperformer in the region on Monday, with USDPEN closing just above 3.70, which has been the currency pair’s pivot point for the past week.
  • BBVA still prefer short-dated Soberanos, but the market reaction could lead to additional premia and space to add duration once most of the initial flow clears. It is important to note that, as in the past, the BCRP does have tools to provide liquidity to local markets and dampen market volatility during withdrawal events via repos and/or secondary market purchases of bonds (up to 5% of the YE2023 monetary base or circa USD1.2bn / PEN 4.5bn).
  • The central bank also has several tools to support FX liquidity via FX Swaps, CDs and direct FX intervention with USD74bn of reserves (circa 32% of GDP, or 2x the IMF Reserve Adequacy level).
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