EM LATAM CREDIT: Central Bank Cuts Policy Rate 25bps to 9.25%: Neutral View
Republic of Colombia (COLOM; Baa2neg/BB+neg/BB+neg)
• Unanimous decision to cut the policy rate 25bps to 9.25% as the Board was satisfied that the disinflationary trend was still intact, and that monetary policy was contractionary.
• Colombia’s budget plan submitted February 2025 projected 3.6% inflation by the end of the year yet the last reported inflation data from March showed 5.09% YoY and core CPI of 5.19%. The previous month was reported 5.28% and 5.44% respectively. That is why some in the market thought the Central Bank might leave the policy rate unchanged again this month.
• Inflation has been coming down since earlier in 2024 when it had an 8% handle, then 7%, then 6% in the fall but has since stalled out in the low 5% range.
• The IMF projected 4.7% inflation for 2025 and 2.4% real GDP growth. Meanwhile, GDP growth has slowed with most recently February economic activity reported at 1.8%, down from 2.6% in January and 3% in December. Fourth quarter 2024 real GDP was reported .6%. The government’s projection for 2025 real GDP was 2.6% as of the budget plan from February 2025.
• Colombia 8% 2035 bonds were last quoted T+405bps, 40 bps wider MTD. Those bonds are quoted158 bps wider than Brazil (BRAZIL; Ba1pos/BB/BB) 2035s and 23 bps tighter than El Salvador (ELSALV;B3/B-/B-) 2035s.
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Historical bullets
USDCAD TECHS: Trend Signal Affirmed as Bullish
- RES 4: 1.4700 Round number resistance
- RES 3: 1.4641 76.4% retracement of the Feb 3 - 14 bear leg
- RES 2: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 1: 1.4402 High Mar 20
- PRICE: 1.4325 @ 14:42 BST Mar 31
- SUP 1: 1.4235 Low Mar 26 and a key near-term support
- SUP 2: 1.4151/4107 Low Feb 14 / 50.0% of Sep 25 - Feb 3 bull run
- SUP 3: 1.4011 Low Dec 5 ‘24
- SUP 4: 1.3944 61.8% retracement of the Sep 25 ‘24 - Feb 3 bull cycle
USDCAD continues to trade through last week’s high. Moving average studies continue to highlight a dominant uptrend. A reversal higher would refocus attention on the bull trigger at 1.4543, the Mar 4 high. First resistance to watch is 1.4402, the Mar 20 high. A return lower and clearance of 1.4235, the Mar 26 low, would undermine the bull theme and instead highlight potential for a test of 1.4151, the Feb 14 low and a bear trigger.
US TSYS/SUPPLY: March Auction Review: 7Y Unusually Weak; 20s Strongest (2/2)
Although the 7-year tail of 0.6bps was modest, it was the largest since last August. Primary dealer take-up rose to 12.7% from 8.8% in February. That drove a notable weakening in MNI’s RSI (which compares the latest auction’s results to the last five trade-through/tails and the last 10 dealer take-up percentages) to -2.64, its lowest since our records began in March 2021.
- The largest outright tail was seen in the 30-year line (1.1bps), but this compared to a 1.3bp tail in February. The 30-year RSI was essentially unchanged on the month at -1.08.
- The strongest auction in March was the 20-year, which saw a 1.4bp tail and a low 8.8% dealer take-up. This drove an RSI score of 1.69, which though, was still below January’s 1.78.
US TSYS/SUPPLY: March Auction Review: More Tails Than Trade-Throughs (1/2)
March's Treasury auctions brought the following results. Of the 7 nominal coupon auctions, three traded through and four tailed, with the 7-year sale standing out on the weak side according to MNI’s Relative Strength Indicator (RSI).
- 2Y Note trade-through: 3.984% vs. 3.985% WI.
- 2Y FRN: 0.105% high margin vs. 0.090% prior.
- 3Y Note tail: 3.908% vs. 3.902% WI.
- 5Y Note tail: 4.100% vs 4.095% WI.
- 7Y Note tail: 4.233% vs. 4.227% WI.
- 10Y Note trade-through: 4.310% vs. 4.314% WI.
- 10Y TIPS: 1.935% high yield vs 2.243% prior
- 20Y Bond trade-through: 4.632% vs 4.646% WI.
- 30Y Bond tail: 4.623% vs. 4.612 % WI.
