- Barclays have noted the BCRP is set to start its easing cycle soon (their economist is calling for October but with risks of a cut as early as this week) with economic growth slowing and inflation easing, and the bank believes risk-neutral rates will lead the second leg lower in Soberanos.
- PEN has been relatively immune to the deterioration of the local economic outlook and the return of political upheaval and protests. The lack of a clear alternative is allowing President Boluarte to muddle through. However, subdued copper prices and a more challenging global backdrop have offset the reduced political noise, with local growth slowing.
- Barclays expect the PEN to continue to react to global factors. It could underperform under a scenario of further China weakness if it is accompanied by lower metal prices, but Barclays would expect the move to be contained, as the BCRP has been active in smoothing volatility.
- Barclays believe the Soberanos curve has been largely contained, despite the move in core rates. Peruvian yields have priced out political tail risks, and the term premium has compressed meaningfully. Weak domestic growth seems to be offsetting the effect of El Niño on prices. Barclays remain long Soberano 2033s (FX-unhedged).
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