Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<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

<ul>
<li>With global rate curves bear-flattening, slopes in several emerging countries have reached extreme levels, arguing for steepening trades. I discuss the arguments for and against a steepening trade in Chile.</li>
<li>The main arguments in favor are the slowing growth and inflation likely peaking in the coming months, which imply that the monetary tightening may be in the late stages.</li>
<li>To initiate the trade, I prefer to wait until the MPC meeting later this month for the central bank to provide more clarity on the potential duration of the cycle.</li>
</ul>


With global rate curves bear-flattening, slopes in several emerging countries have reached extreme levels, arguing for steepening trades. I discuss the arguments for and against a steepening trade in Chile.
The main arguments in favor are the slowing growth and inflation likely peaking in the coming months, which imply that the monetary tightening may be in the late stages.
To initiate the trade, I prefer to wait until the MPC meeting later this month for the central bank to provide more clarity on the potential duration of the cycle.


Does Chile’s Rate Curve Flattening Offer an Opportunity?

Chile

A vanila interest rate swap us an agreement between two counterparties to exchange cashflows (fixed vs floating) in the same currency. This agreement is often used by counterparties to change their fixed cashflows to floating or vice versa. The payments are made during the life of the swap in the frequency that is pre-established by the counterparties.

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CLP 5Y (CHSWP5 CURNCY)

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

Does Chile’s Rate Curve Flattening Offer an Opportunity?

With global rate curves bear-flattening, slopes in several emerging countries have reached extreme levels, arguing for steepeners. I discuss the...

Gautam Jain, PhD, CFA

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