- In recent weeks, implied rates in pesos in the MXN forward curve have been increasing significantly. Currently there is no arbitrage between Cetes and implied rates in the MXN forward curve since the spread between the cost and the position’s performance is negative.
- Higher implied rates are the result of both more restrictive monetary policy expectations in the MXN forward curve amid excess liquidity in USD and more appetite to hedge MXN.
- SOFR cross-currency basis swaps have also increased in recent weeks. The cross-currency basis is incorporating the disparity between the implied USDMXN forwards and the deposit rates in USD, thus mirroring arbitrage.
- The movement in the basis tells us that appetite for hedging pesos has increased recently in line with the increase in forwards.
- In USD terms, there is an opportunity for arbitrage as USD deposit rates are higher than USD implied rates in the MXN forward curve. Therefore, we see value in taking advantage of the recent distortions in implied rates in the MXN forward curve.