Latam Fixed Income Strategy

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Mar 1, 2018 - COLOMBIA - COLTES UVR Bonds (inflation linkers). Source: Bloomberg (LCPR), Itaú. 2. 0.7. 1.2. 1.7. 2.2. 2
Latam Fixed Income Strategy Colombia Local Rates Tracker March 1, 2018

IBR Swaps UVR

REAL RATES

COLTES

NOMINAL RATES

Summary Table

IBR Rate 3-month 6-month 9- month 1-year 18-month 2-year 3-year 4-year 5-year 7-year 8-year 10-year 12-year 15-year 20-year Oct-18 Nov-18 Sep-19 Jul-20 May-22 Jul-24 Aug-26 Apr-28 Sep-30 Jun-32 Apr-19 Mar-21 Feb-23 May-25 Mar-27 Mar-33 Apr-35

Source: Bloomberg (BGN), Itaú

Amount Outstanding

Modified Duration

Last Price

(COP Billions)

(Years)

(% a.a.)

3,432 9,669 13,850 19,500 28,596 26,890 28,779 14,025 17,295 9,416 10,379 19,580 15,834 9,912 5,764 9,299 8,089

0.0 0.2 0.5 0.7 1.1 1.5 2.2 2.8 3.4 4.3 4.7 5.3 5.9 6.5 7.3 0.6 0.7 1.4 2.0 3.4 4.6 6.0 6.9 7.8 8.4 1.1 2.8 4.5 6.1 7.5 11.4 11.5

4.34 4.28 4.29 4.29 4.39 4.64 4.72 5.06 5.30 5.50 5.87 6.01 6.30 6.46 6.70 6.91 4.38 4.51 4.84 5.39 5.95 6.33 6.73 6.93 7.03 7.18 0.95 2.20 2.65 2.88 3.15 3.75 3.75

Δ1D

Δ1W

Δ1M

0 0 1 4 4 5 4 3 2

-1 -3 0 5 16 14 8 8 7

-1 -26 1 25 19 16 16 17

Δ1Q

Δ1H

Δ1Y

-72 -127 -56 -26 -15 9 -

-255 -99 -49 -31 -31 3 19

(basis points)

-23 -36 -4 10 12 -

Prices as of 17:10 EST

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COLOMBIA - COLTES UVR Bonds (inflation linkers)

UVR (linkers) 4.2

Yield to Maturity (% p.a.)

3.7 3.2

Last a day before a week before a month before

2.7 2.2 1.7 1.2 0.7 1.1

2.8

4.5

6.1

7.5

11.4

Modified Duration (years)

Source: Bloomberg (LCPR), Itaú.

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Forward-Implied Policy Rate Expectations COLOMBIA: Forward-Implied Interest-Rate Expectations SPOT RATES

Terms

FORWARDS Rates Ex-TP

TP =Term Premium (bps)

1y

4.54%

4.14%

40

1y1y

5.24%

4.69%

55

2y1y

5.93%

5.11%

82

3y1y

6.16%

5.11%

105

4y1y

6.69%

5.41%

128

5y5y

7.42%

5.72%

170

6m6m

4.39%

4.09%

30

2-year 4.88%

3-year 5.22%

5-year 5.66%

TERMINAL RATE

FRONT-END

Note: The policy rate currently stands at 4.50%

IBR swaps: implicit rate moves by... 140

b ps 114

120 100 80 60

44

40 20 0 -5

-20

Swaps pricing Analysts' projections

-22

-40 2018YE

2019YE

Source: Bloomberg, Banrep, Itaú

IBR swaps pricing vs. projections 6.8% 6.3%

% p.a.

Consensus forecast Forward curve pricing Itaú forecast

5.8% 5.3% 4.8% 4.3% 3.8% Feb-18

Feb-19

Feb-20

Feb-21

Source: Bloomberg, Banrep, Itaú

Feb-22

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Breakeven Inflation Rates (BEIRs)

Last

Δ1D

Δ1W

Δ1M

-

-2 27 12 4 9 6 7 -3 9 24 27 17 3 7 10 6 6 7 7 51 32 -11 -53 8 39 44 -2 -57

18 33 14 20 29 24 23 19 24 35 34 22 10 26 28 23 24 23 23 51 31 -14 -35 35 46 37 -7 -43

SPOT BEIRs FORWARD BEIRs

3.73% 3.46% 3.58% 3.82% 3.82% 3.43% 3.43% 3.69% 3.69% 3.68% 3.48% 3.57% 3.65% 3.84% 3.80% 3.70% 3.43% 3.43% 3.43% 3.68% 3.09% 3.82% 3.97% 3.75% 3.58% 3.71% 3.09% 3.85% 3.86%

Source: Bloomberg (BGN), Itau

Δ1H

Δ1Y

59 33 26 13 -6 74 56 55 32 35 30 12 7 -5 -9 -6 -6 36 -14 42 11 -41 41 48 0 23 -9

-59 -36 -24 -9 -7 -12 -67 -67 -62 -57 -24 -16 -8 -9 -4 -11 -12 -12 -58 -45 75 12 8 -70 -26 -18 5 -17

(basis points)

(% a.a.)

Apr-19 Mar-21 Feb-23 May-25 May-27 Mar-33 Apr-35 1Y 18M 2Y 3Y 4Y 5Y 7Y 8Y 10Y 12Y 15Y 20Y 1y1y 2y1y 3y1y 4y1y 5y5y Jan-18/Jan-19 Jan-19/Jan-20 Jan-20 /Jan-21 Jan-21 /Jan-22 Jan-22/Jan-23

Δ1Q

31 25 21 13 33 32 36 25 26 20 5 -12 -40 -67 -67 -67 38 4 27 -5 -99 6 41 9 23 -19

Prices as of 17:10 EST

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5.0

Inflation projections: survey vs. assetimplied estimates % annual

Analysts projections BEIRs forwards

4.5 4.0 3.7

3.5

3.5

3.8

3.7

3.6 3.4 3.1

3.1 3.1

3.1

3.0 2.5

2.0 1.5 2018

2019

2020

2021

2022

Source: Bloomberg, Banrep, Latin Consensus, Itaú

Basis (spread vis-à-vis IBR swaps)

COLTES

Basis

Oct-18 Nov-18 Sep-19 Jul-20 May-22 Jul-24 Aug-26 Apr-28 Sep-30

Historical Mean (since 2014)

Last

(bps)

(bps)

56 47 69 85 98 104 115 115 119

-100 -89 -62 -18 27 59 91 108 116

Source: Bloomberg (BGN), Itaú

1D

1W

1M

1Q

1H

1Y

(basis level in previous periods, in bps)

-

17 27 24 66 81 94 109 114 107

25 32 28 60 71 79 87 83 84

41 46 48 74 77 88 98 101 89

25 38 53 77 87 82 94 95 93

25 21 60 68 79 90 103 100 94

Prices as of 17:10 EST

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