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Goldman Sachs Recommend Staying Long FX-Unhedged 3Y Mexican MBONOs

LATAM
  • Monetary policy decisions in Mexico have so far been steered more clearly by the external backdrop and Fed policy than by domestic inflation developments. With Banxico likely to board the easing train soon, GS think it makes sense for investors to hold the 'double long' in Mexico, with the rates and FX exposures complementing each other through the early innings of a cautious Banxico cutting cycle (GS recommend staying long FX-unhedged 3Y Mexican MBONOs).
  • In Brazil, with a more benign domestic growth backdrop and a steady COPOM cutting cycle, which has allowed real rates to remain elevated and FX carry constant, GS think domestic factors are supportive of BRL.
  • Overall, Goldman believe this carries an important lesson for the upcoming EM and G10 cutting cycles: while currently rates moves are highly correlated across regions, once we get closer to the respective countries’ first rate cuts, there should be more scope for divergence across rates and currency markets.
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