Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>Rates in emerging countries are rising with the US, but they are outperforming. As an example, Mexico's spread to the US remains high but is off the peak.</li>
<li>Inflationary pressures, including elevated inflation expectations and breakeven, argue for a high spread. On the other hand, aggressive rate hikes are priced and real rates are already high.</li>
<li>With inflation likely to peak soon, I find rates in Mexico high enough to receive and have a trade recommendation accordingly, even though there are arguments on both sides.</li>
</ul>


Rates in emerging countries are rising with the US, but they are outperforming. As an example, Mexico's spread to the US remains high but is off the peak.
Inflationary pressures, including elevated inflation expectations and breakeven, argue for a high spread. On the other hand, aggressive rate hikes are priced and real rates are already high.
With inflation likely to peak soon, I find rates in Mexico high enough to receive and have a trade recommendation accordingly, even though there are arguments on both sides.


<ul>
<li>Rates volatility remains high with the latest boost coming from the rising probability of a global recession as possible outcomes of the ongoing Fed tightening and Russia's invasion of Ukraine.</li>
<li>After inverting briefly, the US 2s10s slope has started steepening, which should continue despite recessionary risks as the Fed's balance sheet reduction should weigh heavily in the long end.</li>
<li>With the US 5s10s switching to steepening from flattening, the case for similar steepening is strong in a few emerging countries that are ahead in terms of monetary tightening.</li>
</ul>


Rates volatility remains high with the latest boost coming from the rising probability of a global recession as possible outcomes of the ongoing Fed tightening and Russia's invasion of Ukraine.
After inverting briefly, the US 2s10s slope has started steepening, which should continue despite recessionary risks as the Fed's balance sheet reduction should weigh heavily in the long end.
With the US 5s10s switching to steepening from flattening, the case for similar steepening is strong in a few emerging countries that are ahead in terms of monetary tightening.


Global Rate Curves (Ex-Asia) At an Inflection Point

<ul>
<li>In my monthly recap note, I provide a performance update of my trade recommendations in emerging markets FX and rates.</li>
<li>Of the total of 35 trade recommendations made so far, I have recommended closing 25 of which 18 were in the money.</li>
<li>I also update my views on the open trade recommendations and go over the rationale behind those that I closed recently.</li>
</ul>


In my monthly recap note, I provide a performance update of my trade recommendations in emerging markets FX and rates.
Of the total of 35 trade recommendations made so far, I have recommended closing 25 of which 18 were in the money.
I also update my views on the open trade recommendations and go over the rationale behind those that I closed recently.


Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – March 2022

<ul>
<li>With the volatility of US rates remaining elevated, it is a good time to evaluate how my thematic recommendation for 2022 of curve steepening trades in EM is playing out.</li>
<li>The slopes of rate curves in EM have stabilized even as they continue to flatten in the US and, more broadly, DM – a break in correlation that should persist.</li>
<li>EM curves should start steepening as ex-Asia they are ahead of DM in rate-hiking cycles and their worsening debt dynamics should keep the risk premium elevated in the long end.</li>
</ul>


With the volatility of US rates remaining elevated, it is a good time to evaluate how my thematic recommendation for 2022 of curve steepening trades in EM is playing out.
The slopes of rate curves in EM have stabilized even as they continue to flatten in the US and, more broadly, DM – a break in correlation that should persist.
EM curves should start steepening as ex-Asia they are ahead of DM in rate-hiking cycles and their worsening debt dynamics should keep the risk premium elevated in the long end.


An Update on High Conviction 2022 Thematic Rate Curve Steepening Trades in EM

<ul>
<li>Chile’s rate curve has bear-flattened driven by the short end with inflation running at a decade high on the heels of strong demand, leading to an aggressive monetary tightening cycle.</li>
<li>Over the coming months, the monetary tightening cycle should end with inflation coming off the highs and growth slowing down sharply, which should lead to steepening of the curve.</li>
<li>Additionally, with the still-high political uncertainty and the fiscal deterioration of recent years continuing to weigh on the long end, I recommend a beta-neutral 5s10s curve steepening trade.</li>
</ul>


Chile’s rate curve has bear-flattened driven by the short end with inflation running at a decade high on the heels of strong demand, leading to an aggressive monetary tightening cycle.
Over the coming months, the monetary tightening cycle should end with inflation coming off the highs and growth slowing down sharply, which should lead to steepening of the curve.
Additionally, with the still-high political uncertainty and the fiscal deterioration of recent years continuing to weigh on the long end, I recommend a beta-neutral 5s10s curve steepening trade.


Alpha Bites: A Local Rate Curve Steepening Trade in Chile

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CLP 10Y (CHSWP10 CURNCY)

Are Mexico’s Local Bonds Cheap?

With inflation likely to peak soon, I find rates in Mexico high enough to receive and have a trade recommendation accordingly, even though there...

Gautam Jain, PhD, CFA

Global Rate Curves (Ex-Asia) At an Inflection Point

With the US 5s10s switching to steepening from flattening, the case for similar steepening is strong in a few emerging countries that are ahead in...

Gautam Jain, PhD, CFA

Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – March 2022

I provide a performance update of all my trade recommendations along with discussing the open trades. I have closed 25 of the 35 trades recommended...

Gautam Jain, PhD, CFA

An Update on High Conviction 2022 Thematic Rate Curve Steepening Trades in EM

Revisiting my thematic recommendation for 2022, EM rate curves should start steepening as ex-Asia they are ahead of DM in rate-hiking cycles and...

Gautam Jain, PhD, CFA

Alpha Bites: A Local Rate Curve Steepening Trade in Chile

I recommend a rate curve steepening trade in Chile as the drivers behind the flattening should reverse with the monetary tightening cycle ending as...

Gautam Jain, PhD, CFA

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52-week Range

Market Cap (USDm)

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