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JPMorgan Enter 5-year CLP Camara Payers

CHILE
  • Following on from the previous note, it is worth highlighting that JPMorgan have entered 5y CLP Camara payers (entry: 4.88%, target: 5.75%; review: 4.25%). The bank notes that with the market pricing a terminal policy rate of 4% within two years, below many estimates of neutral and below their economist’s forecast of a terminal rate of 5%, JPM think risk-reward favours payers, with positive carry and roll of 8bp/month. Heavy positioning, coupled with recent outperformance, also makes Chilean payers a good addition to their otherwise mostly received EM rates portfolio.
  • In FX, a more hawkish BCCh, the end of the central bank FX programs and better sentiment around China have all contributed to CLP appreciation, at the same time US dollar sales by the Treasury resumed.
  • The picture is less straightforward for rates. Instead, JPM think technical factors are behind their strength in the EM space. Domestic investors have piled into receivers in longer-dated swaps, more than doubling their net receiving position in the last three months.
  • Asset swap spreads in the 5- and 10-year buckets are around the widest levels seen in the last ten years. While prospects of higher local currency debt issuance next year might justify some widening, it currently seems extreme.
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