25 May 2015
EM FX and rates strategy – DB
FXStreet (Barcelona) - The emerging markets backdrop still remains supportive, says the Team at Deutsche Bank as they share their Forex and rates strategy for EM.
Key Quotes
“The jury is still out on whether persistent sub-par growth lies ahead, but the growth-inflation backdrop in the US bodes for a consolidation in rates vol. This, low VIX and falling CVIX benefits EM, in our view.”
“We take profit on TRY/BRL and MXN/COP, but continue to be bearish BRL and COP through buying USD/BRL 1x2 call spreads and selling USD/COP puts (to finance USD/CLP puts). We hold long PLN, HUF, RON vs. THB, KRW, SGD, as well as TRY/ZAR and RUB vs. the basket.”
“In rates, given the already dovish market pricing, we recommend paying the short end in Israel – with a flattening bias. Hungary’s short-end overshot and we reverse our recommendation to a tactical flattener (staying overweight duration). We position for retracement via short-end receivers in South Africa, Poland Turkey and Russia (with steepening bias in the latter two), hold receivers in Brazil (Jan18) and 1Y Mexico, but 1Y payers in Colombia (with a flattening bias on cash). We also hold 10Y TIIE vs. USD and MUDI 40s vs. TIPs 40, and extend duration in Peru.”
Key Quotes
“The jury is still out on whether persistent sub-par growth lies ahead, but the growth-inflation backdrop in the US bodes for a consolidation in rates vol. This, low VIX and falling CVIX benefits EM, in our view.”
“We take profit on TRY/BRL and MXN/COP, but continue to be bearish BRL and COP through buying USD/BRL 1x2 call spreads and selling USD/COP puts (to finance USD/CLP puts). We hold long PLN, HUF, RON vs. THB, KRW, SGD, as well as TRY/ZAR and RUB vs. the basket.”
“In rates, given the already dovish market pricing, we recommend paying the short end in Israel – with a flattening bias. Hungary’s short-end overshot and we reverse our recommendation to a tactical flattener (staying overweight duration). We position for retracement via short-end receivers in South Africa, Poland Turkey and Russia (with steepening bias in the latter two), hold receivers in Brazil (Jan18) and 1Y Mexico, but 1Y payers in Colombia (with a flattening bias on cash). We also hold 10Y TIIE vs. USD and MUDI 40s vs. TIPs 40, and extend duration in Peru.”