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Deutsche Bank Remain Constructive On Carry Trades

LATAM
  • Deutsche Bank believe that low vols, a rangebound US dollar and cautious central banks remain supportive of carry trades. In their view, valuation and BoP favour BRL within the high yielders. They are short EURBRL, with a target of 5.25. Flows and carry also remain supportive of MXN, but previous outperformance and positioning limit potential upside. On PEN, DB believe that recent appreciation seems excessive particularly vs. CLP and they would position for retracement. They would sell PENCLP at 263, with a target of 254.
  • In the fixed income space, DB note that although the Fed being on hold for now will hinder performance, they expect domestic drivers to prevail. They recently took profit in COP and CLP short-end receivers but see value in the short end of their cash curves. In their view, Brazil’s short end offers the most premium, and they stay long 2Y with a target of 9.25, but uncertainty on inflation, fiscal accounts, and activity must ease for receivers to reprice. In Mexico, DB stay long 5Y TIIE (target 8.20) and MBono 2029 (target 8.50) as the short end would be more sensitive to possible pauses. They also hold SOB 2032 in Peru, with a target of 5.80, which has lagged.
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