MEXICO: BofA Expects Banxico To Pause After 25bp August Cut
Jul-02 16:57
- BofA expects core inflation to keep rising to peak at 4.5% in November, driven by high wage growth and last year's MXN depreciation. They see this as a risk for Banxico in the short-run, which may force it to pause its easing cycle. However, a weak economy and a strong MXN will likely bring core down in 2026, opening the door for sub-7% rates.
- BofA expects one more 25bp cut in August, before Banxico pauses through year-end. They note it may not even be able to cut in August if core inflation keeps increasing.
- However, once core inflation recedes next year, they think Banxico will likely find room to cut rates by 100bp to 6.75% by end-2026. They expect these cuts in H2 2026, when the Fed cuts rates, although they note the risk of earlier moves from both. They see downside risks to their 6.75% forecast, with a possibility that the policy rate falls inside its neutral range.
- Given the uncertainty around inflation, BofA sees risks for front-end rates to drift higher should Banxico pause in August. However, they prefer to focus on the medium term, where they expect rates to be 75bp lower than the market implies. Therefore, once uncertainty around a short-term hawkish Banxico surprise is cleared, they believe there could be meaningful value in the belly and the back-end of the curve.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
STIR: Full Reversal Of Rally On ISM Mfg, Powell Half-Watched Ahead
Jun-02 16:55
- Fed Funds implied rates for late 2025 have almost fully reversed the modest dovish tilt after the miss for ISM mfg (but with prices paid seeing another month close to 70) and soft construction spending.
- Cumulative cuts from 4.33% effective: 1bp Jun, 6.5bp Jul, 21.5bp Sep, 35.5bp Oct and 51.5bp.
- SFRZ6 meanwhile is back at pre-ISM lows of 96.725, for an implied terminal yield of 3.275% after a 4.5bp intraday recovery. It’s back in the range of 100bp +/-5bp of cuts from the effective rate seen mostly over the past three weeks).
- Ahead, Fed Chair Powell is set to give opening remarks at conference marking the Board of Governors International Finance 75th anniversary (text only). The conference is to recognize the division’s history and we don’t expect Powell to touch on mon pol, or at least certainly not offer anything new, but will monitor just in case.
MNI EXCLUSIVE: ISM Manufacturing Survey Chief Speaks to MNI
Jun-02 16:54
- ISM manufacturing survey chief discusses the sector outlook -- On MNI Policy MainWire now, for more details please contact sales@marketnews.com
OPTIONS: German Package, Sonia Condors Monday
Jun-02 16:52
Monday's Europe rates/bond options flow included:
- Bond Futures Package:
- DUU5 107.30p, sold at 21.5 in 6.75k
- DUU5 107.20p, sold at 17.5 in 6.75k.
- UBU5 119.00p, sold at 280 in 500.
vs - RXU5 130.00p, bought for 115 in 2k.
- OEU5 117.75p, bought for 64.5 in 4k.
- ERM5 97.87p, bought for 0.25 in 6k.
- SFIU5 96.00/95.90/95.60p ladder, bought for 3.5 in 4k.
- SFIZ5 96.25/96.35/96.45/96.55c condor, bought for 2 in 5k.
- SFIZ5 95.90/95.80/95.70/95.60p condor, bought for 1.75 in 8.88k.
