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SocGen Expect Steepening Tilt On LatAm Swap Rate Curves

LATAM
  • Although SocGen only expects the Fed to start cutting rates in 1Q 2025, they believe that the adjustments made by LatAm markets over recent years have made them resilient and created opportunities for investors. They note the disciplined and flexible monetary policies, low external imbalances, manageable fiscal and debt standings, and leaner positioning. The main risk to their view is the market moving to price Fed hikes in 2024.
    • SocGen expect a range-bound path with a steepening tilt on LatAm swap rate curves. External factors may keep the front-end volatile, and against this backdrop, they expect the BCB to stay put at 10.75% next week (though a 25bp cut cannot be discarded), while Banxico also remains on hold. BCCh and BanRep will likely both cut by 50bp at their next meetings.
    • The long-end of LatAm swap curves is also likely to remain range-bound and easing, though at elevated yields compared to earlier this year, given a potential a higher US r* and long-term equilibrium rate.
    • Persistent political noise in Brazil due to ongoing fiscal tensions is keeping rates elevated, especially in the long end. This makes Brazil an outlier compared to the other LatAm countries, which are more in tandem with UST 10y yields currently.
    • SG are neutral-bullish on LatAm FX, with stabilising cross-asset volatility and still friendly financial conditions supporting regional currencies. They are neutral-bullish on the MXN and COP, and neutral on the BRL and the CLP.
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