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JP Morgan Close UW COP, But Remain OW Rates

COLOMBIA
  • JP Morgan are closing their UW COP position for now, given that most of the drivers they expected to foster FX weakness have played out, but COP remains resilient due to still high carry. Although nominal carry will decline as the pace of rate cuts picks up, they think it will remain high enough to offset other risk factors for the time being. They would re-enter the trade later if there are signs that the acceleration of the rate cycle is leading to a weaker currency.
  • JPM stay OW rates, however, with a preference for front-end bonds, given the decline of inflation, weak growth backdrop and negative output gap, which supports more easing ahead. They like Aug-26 COLTES as they still offer a more than 100bp pickup relative to a matched maturity swap, and also hold an IBR 2s10s steepener.
  • Today’s February CPI inflation data, released after market close at 2300GMT / 1800ET, should pave the way for BanRep to step up the pace of easing at its March 22 MPC meeting. Consensus forecasts see headline inflation falling to 7.69% y/y, from 8.35%, with core easing to 9.10%, from 9.69%.
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