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JPM Expect Substantial Rise in Local Debt Issuance

MEXICO
  • JP Morgan write that with a higher fiscal deficit next year, they expect a substantial rise in local debt issuance. In Mbonos, they expect supply to go from MXN 470bln in 2023 to MXN 760bln in 2024.
  • They think credit agencies will not act upon this single year’s budget, the outlook going forward points to the need for a fiscal reform. This seems unlikely to be carried out, however, if incumbent party wins next year election.
  • They write that Mexican rates could still do relatively well, especially given that the debt trajectory appears for now contained. Thus, we think the best way to position for this backdrop is with steepeners in bonds or swaps and asset swaps being better candidates than outright shorts.
  • They see risks of higher issuance as somewhat in the price; and prefer to be positioned via 2s10s TIIE steepeners. The steepeners can benefit from a steeper bond curve, as well as higher US 2s10s and policy normalization.
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