- In this note, we delve into potential opportunities to hedge MXN exposure within cross-currency basis swaps and USDMXN forwards.
- In terms of USDMXN forwards, as the MXN has maintained its positive momentum, levels have moved close to 17.60s for the next six months and close to 18.0s for the next year, below our 18.8 estimate by mid-year and 18.2 for year-end. Forwards levels have decreased as markets moved to price in a more dovish approach from Banco de México and now perceive the MXN’s strength as rather permanent.
- MXN implied yields in the forward curve have declined in recent months. The SOFR cross-currency basis has decreased to negative territory in all tenors, suggesting that there is no appetite for hedging MXN positions.
- From an issuer’s perspective, it makes sense to hedge peso positions given the coming events (Banxico cuts and elections).
- Finally, given the recent movement of MXN-implied yields in the forward curve compared to the Cetes curve, the room to take advantage of arbitrage opportunities is open. The spread between Cetes and MXN-implied yields have moved to positive territory in recent weeks. Therefore, we see value in carrying out arbitrage strategies in the 9M-1Y section as the spread stands above 40bp.