(Bloomberg) – Fixed income traders in Chile are betting that next month the political scene will continue to be the main ‘driver’ of rates, that the differentials, or ‘spread’, of bank bonds would increase and that the curve of nominal Treasury bonds will rise. However, when it comes to inflation-indexed bonds, opinions are divided.
Faced with the possibility of a lower value added tax in Chile, half of the 18 analysts surveyed by Bloomberg News predict that the BTU curve, indexed to the CPI, will flatten, while the other half bet on a steeper curve. This is a change from last month’s survey, in which most traders expected the curve to get steeper.
At the center of all this is a possible VAT reduction, a project that has already been approved by the Chamber of Deputies. The 19% rate would decrease to 4% for essential products such as milk and vegetables, and to 10% for fuels and some services, which could reduce future inflation. Bank of America said it could cut 1.7 percentage points in inflation by the end of the year.
Jorge García, Nevasa’s investment manager, is on the side of those who bet on a flattening of the curve. “Although rates already reacted upward when the discussion of the bill began, the effect is not completely internalized,” he said. The text has yet to be discussed in the Senate and Garcia hopes that yields will rise again when the debate resumes.
Milenko Mitrovic, head of studies at the Octogone multifamily office, is on the other side. He hopes that the local political scene, global economic growth and the withdrawal of stimulus by central banks will offset the effects of the tax cut and push the longest part of the curve up more strongly.
The general direction of the nominal rates and in UF will be upwards, according to 80% of the operators. As for the nominal yield curve, 61% bet it will be steeper with higher increases in longer rates, while only 22% anticipate a flatter nominal curve with higher short rates.
Within Treasury bonds, 56% recommend CPI-indexed debt maturing in 5 years or less, compared to 70% in May. The number of operators that prefer short maturities in pesos increased from 15% to 22%. Only 5% said they would invest in bonds with a maturity of more than 12 years.
The central bank’s purchases of local bank bonds have kept spreads tight and that effect could be ending. About 67% of analysts believe that bank bond spreads will increase, up from 60% in the last survey. Only 6% foresee that they will fall, while the rest estimate that there will be no significant changes in June.
Especially in contrast to corporate bonds, “bank bonds are currently with fairly compressed spread levels and do not deliver a relevant premium due to the uncertainty that exists in the current scenario,” said Rodrigo Barros, credit director of Credicorp Capital Asset Management. .
The current uncertainty is also seen in traders’ preference for lower risk corporate bonds in June. Half of traders would only invest in bonds rated “AA” or higher, up from 45% in May. The percentage of traders willing to buy corporate bonds with a minimum rating of “BBB” fell from 25% to 11%. However, in the latest survey, 72% prefer corporate bonds to Treasury bonds, up from 60% in May.
May. 31: Unemployment rate AprilMay. 31: Retail Sales April May. 31: Manufacturing production AprilMay. 31: Industrial production AprilMay. 31: Copper Production Jun. 6: Economic activity (Imacec) April
Jun. 1: Markit Manufacturing PMI May. 1: Construction Expenses AprilJun. 1: ISM Manufacturing MayJun. 1: FED Dallas Manufacturing Activity May Jun. 3: Consumer Confidence Langer May Jun. 3: Markit Services PMI MayJun. 3: Markit Composite PMI May Jun. 3: ISM Services Index MayJun. 4: Unemployment rate MayJun. 4: Durable Goods Orders April Jun. 4: Factory orders April China: May. 30: Manufacturing and Non-Manufacturing PMI Jun. 2: Caixin Composite PMI MayJun. 2: PMI services of Caixin May
Jun. 1: CPI MayJun. 1: Markit May Manufacturing PMI
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