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JP Morgan Favour 5Y Camara Payers

CHILE
  • After a strong start to the year, Chile swaps have underperformed EM in February, while CLP is amongst the worst performing in EM YTD as BCCh has continued with its aggressive easing cycle. Given the outlook for inflation and activity and more cautious narrative around the Fed, JP Morgan remain in favour of keeping a CLP payers position.
  • They note that Camara swap yields tend to move higher when the peso is depreciating, with a higher beta when the sell-off is more pronounced. On the FX, JPM note that BCCh has not shown concern so far, despite the REER being close to levels where they had previously intervened. They think the bar for a meaningful intervention remains high at this stage, given Chile’s current level of FX reserves and muted inflation.
  • At current FX levels, JPM think risk reward looks better for payers, as the market continues pricing a higher terminal rate and needs to incorporate more risk premium in the Chilean swaps curve. While remaining neutral CLP, they continue to hold 5Y Camara payers, with a target of 5.75% and review at 4.25%.
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