On the assumed opening of trading activities for the 2009 exercise, LATAM was faced with a couple of less-than-desirable external influences. US Treasuries, a major source of impulse for LATAM debt in its ongoing recovery rally, finally felt the pinch of more large supply in the pipeline, which translated into significantly higher yields along the long-end of this curve (10-year back to 2.48%, while 30-year vaulted above the 3% mark to settle at 3.04%). US equity markets hit reverse gear, using the cover of another poor month in US car sales (December car sales off -33.5%) and lingering concerns about global slowdowns in manufacturing as an intra-day catalyst that allowed moderate profit-taking (-.5% for the S&P500). However, the shadow of a growing US stimulus package now pointed beyond the US$700B mark and talk of an embedded US$300B tax cut in the measure was enough off-set the negative US financial market leads for both the debt markets and domestic markets across the LATAM landscape. Curiously, and perhaps serving as a positive prediction on the first full-strength trading day of the year, high-Beta debt paper rolled higher. In Argentina's case, local buying directed by authorities appeared to be behind the 2 point upswing in the 2033 Discount paper. Ecuador, of all credits, was in the thick of the rest of the high-Beta mark-up. Reports our over the weekend indicated that President Correa had expressed some distinction in favor of the 2015 bonds, describing these instruments as beyond the supposed 'illegitimate' condition of the 2012/2030 combo, while other statements from Ecuadorian officials pointed to a potential buyback of these latter instruments at discounts of at least 70%. Both expressions helped produce some upside for Ecuador's debt paper. The 2015 bonds rose to 32 bid on the hope of differentiated treatment, while the likely legal complications related to any such treatment remained obscured from pricing action. Brazil wasted no time in further driving towards recovered surroundings, as plainly exemplified by the 2034 benchmark bond on climbing yet another 1 point to 123 bid. Brazil's relative momentum was also reflected in the stellar day offered by both the BOVESPA (+3%) and the BRL(+4%), which reflected an improved climate for risk and some pass-through effects of local expectations for a 50 bps cut in the SELIC rate in the upcoming COPOM meeting. Somewhat obscured from view stood the crude markets as another source of fuel for local LATAM equities, as oil futures again utilized the geopolitical card to advance beyond US$48.80 p/barrel. Flight towards TES paper by foreigners was the local justification for a +4.2% advance in the COP versus the greenback, leaving the pair at 2221.80.

Rates for the aforementioned TES instruments did in-fact slide on the day, placing nearly the entire curve below the 10.50% barrier. The astounding compression along the NTN-F curve in Brazil continued, also pushing the idea of foreign return into local markets, while yields fell below the 12.75% mark for the longest duration along this curve.

In a bold move, Mexico became the first LATAM credit to test the turbulent market waters for demand of LATAM sovereign risk in floating a new USD-denominated Global issue yesterday. The new bond was tagged with a 2018 maturity and scaled all the way to US$2B of final issuance size, amid a reported bid-to-cover of between 1.5 and 2.0:1. Coupon was fixed at 5.95% and the selling spread came in at +390 bps over US 10-year Treasury paper. All-in-all, a surprisingly good result for a initial foray into a long undisturbed issuance market, though the spread was a give-up of at least 40 bps outside of that held by the 2017 bond, which trades at about par. Mexico received fresh assistance in its endeavor from the US Treasury tidal wave that has dragged fixed-income paper across the globe in its wake. 10-year note yields hit an unbelievable 2.04% yesterday, before eroding to 2.064%, while the 30-year bond barely closed outside of 2.50% yield. This remained the critical feature of focus for the LATAM debt class, which unsurprisingly, again scored solid price gains. However, it's essential to recognize that the background for LATAM continued to change to the side of added complexity. Commodity prices resumed their tumble, with both crude oil and copper as primary protagonists. In the case of the former, expiring January crude collapsed to US$36.22 p/barrel, off over 9%, sending additional shivers into the LATAM oil-exporting camp. In the case of the latter, copper dove below US$1.30 p/lb for January delivery, again stressing the widening differential on the views of the global economy and those set by radiant optimism in debt markets targeted by the FED. The USDollar was the other negative sparkler. Against the Euro, the greenback spun all the way to levels above 1.47, before reversing on some needed profit-taking to 1.4289. LATAM currencies were again listless in facing the continued assault on the USD, with the MXN actually turning negative on the drop in crude prices (13.16, -.5%). The BRL also continued to disappoint in this regard, dropping over -2% back to 2.4250 due to the recovery in the minor reversal in the USD. US equities also constituted another burden on the LATAM region, as the magnitude of the slowdown came into focus through possible downgrades to the ratings of benchmark GE. On the day, all the major US indices fell noticeably (DJIA -2.5% and S&P -2.1%), with this guidance and the ballast of lower commodity prices forcing all regional LATAM indices to the downside, though the majors (IPC, BOVESPA) kept losses at around -1%. Beyond the concentration on the new issuance by Mexico, LATAM sovereign paper moved higher. Brazil's 2034 Global used US Treasury impulse to close bid at 119 15/16's, up nearly 2 points on the day, which placed this credit right below a prior area of strong resistance. Panama got a lagged upside boost for its 2027 benchmark (104 bid, up 3 points on the day), though this credit remains quite wide to the markets core issuers. Argentina, despite Senate approval of the Tax breaks bill was hit by the slowdown in 3Q GDP growth, which retracted to +6.5%. Discount bonds fell back to 29 ¼, off 1 ¾'s on the day.

Dovish COPOM minutes regenerated expectations of a January SELIC cut to come, translating into a strong yield compression run for all credits along the NTN-F curve in Brazil. Long yields were particularly bid, as shown by the rapid march of 2017 NTN-F yields towards the 14% mark. Gyrations in the BRL seemed to indicate that the NTN-F demand remains tied to local participants. It would appear that the deflation run already seen in both the TES and the M-Bond curve is ready to push the NTN-F curve to flatter surroundings, which points back to curve spread trades looking for such result as the open positioning option.

US Treasuries hit some new incredibly low historical levels yesterday, building on Tuesday's momentum created by the latest FED rate decision and its promise to keep rates unusually low for an extended period of time. 10-year US Treasuries touched below 2.10% on the day, before backtracking to 2.20%, while the 30-year bond spun to 2.58% before reversing mildly to 2.65%. Such unbelievable rate surroundings served as a core catalyst for LATAM debt to launch its largest rally since the latest leg of the credit crisis took hold of the market in early October. What started out as a sharp climb centered in core LATAM credits ultimately fanned out to inspire the entire category, pushing high-Beta paper such as Argentina and Venezuela higher, while making even Ecuador's defaulted instruments more attractive on the expectation of prolonged minimal interest rates out of the US (though Ecuador's agreement to pay the December interest installment to BNDES of Brazil also projected a minor positive market signal). Brazil's longer-duration paper, such as the 2034 Global, advanced by over 5 points to 118 ½ bid, in heeding the pull effect transmitted by diving US Treasury yields. Of equally important relevance as the price advance, spread levels contracted by 40 bps in this area of the Brazilian curve, leaving the representative country index for this nation higher by 4% on the day. Mexico, a logical beneficiary of the US Treasury yield magnet, rose by +3.1%, with the same strong downshift as Brazil gripping the long-end of the curve. The 119 ½ bid in the 2031 Global of Mexico reflected a total advance of 10 points between the last two trading days, a very significant advance in percentage terms. Argentina was the most representative of the movers in the riskier sector of LATAM, with the 2033 Discount bond reappearing at 30 bid levels to cap a gain of 2 ¾ points on the day. Aftershocks from the FED decision of Tuesday weren't limited to the surroundings of rates only. The USDollar took an enormous beating at the hands of the Euro on the instantaneously bloating yield differentials, which left the spot rate for this pairing at 1.4413, from the 1.37 levels observed on Tuesday. We'll again stress that the negative correlation between the greenback and commodities seems to have been diluted, in detriment to LATAM economies. Copper remained below US$1.39 p/lb in demonstrating this effect. Crude made an even larger example, though there was also an OPEC trigger involved in the price drop exhibited by this commodity. OPEC agreed and announced a very hefty 2.46MM bpd production cut in an attempt to halt the slide in this market, only to be met with increased doubts about its capacity to enforce new decreased quotas at a time of increased need for revenues among cartel members. Ultimately, January prices for WTI descended abruptly, leaving price levels below US$40 p/barrel in late NY hours. This kept regional LATAM equities in check, as did the loss of momentum exhibited by the major US indices (DJIA -1.1%), with the sole exception of the IPC (+2.4%). Currencies also felt the negative pull of an evident global economic halt, which overrode the tumbling fate of local interest rates in setting the market tone. The BRL continued to fluctuate strongly, backing to 2.36, off over -2.4% on the day.

Perhaps it was adequate anticipation, or just building trend momentum, but the LATAM debt markets got a jump start on what was to come from the FED yesterday. Early morning trading was marked by gains in core credits such as Brazil & Mexico, in an attempt to front-run additional yield declines in US Treasury instruments if the FOMC hit market expectations. The FED then made good things that much better by launching an all-out unorthodox attack on riskier market assets through the complete collapse of Fed funds rates into essentially a null target defined by the FOMC as between 0% and ¼%. US Treasuries went into a frenzy as a consequence of the near zero Fed funds rate, blowing apart prior low historical levels. 10-year yields caved in to 2.26% levels, down over 25 bps, while 30-year paper also plunged beyond 20 bps to 2.72%, both new historical lows. It was this pull that essentially carried a wide-ranging rally across LATAM debt instruments, with the core contingent still very much in command of the performance table, with the exception being Argentina from the high-Beta camp that felt some marginal relief to beaten down bond pricing. Extreme moves on the external front weren't limited to the realm of Treasury paper. The USDollar spiraled downward after being hit by the new Fed funds range, with the EUR/USD rate moving all the way out to 1.4067, after riding the 1.37 handle late Monday. The JPY also edged higher, breaking through 89 versus the greenback. Confirming our observations from Monday, commodities markets remained an absent participant in reacting to the new US rate landscape. Only precious metals had a discernible response, as Gold moved higher to US$858 p/oz., up by US$21 p/oz. on the day. However, crude oil (US$43.90 p/bl) and copper (US$1.4375 p/lb), failed to take the bait of a lower USD and null US interest rates as conducive to a recovery in consumption. Hence, on the boundary of fundamentals for LATAM (commodity exports), very little changed, despite the historic adjustment in US rates. We'll highlight the performance of Brazil's 2025 Global, which moved to 115 bid, higher by 3 points on the day, and that of Mexico's 2031 Global, which climbed by 3 ½ points to 115 bid. The zero-rate rally in US equity markets keyed LATAM equity indices in extending gains, with both the BOVESPA and the IPC rallying by over 4%. Regional currencies also answered the call of a diving USD and forced improvements in risk tolerance through the FED's action. The BRL surged by 3% to 2.30, while the MXN tested the 13 level in advancing 2%.

As anticipated after Friday's decision by Ecuador's President Rafael Correa to no longer service Ecuador's 2012 Global bonds, S&P slapped this sovereign with the SD label yesterday (Fitch followed suit with an RD rating after the close), moving bond prices for this credit to theoretical recovery levels of 20 (offers remained high at 27/28 area, though there's a possible CDS auction linkage to this feature). Concurrently, Ecuador declared a 'technical moratorium' on its 2015 bond, again accessing the grace period on this instrument, which was due a coupon payment yesterday. Both Argentina and Venezuelan debt instruments continued to feel firsthand the fallout from Mr. Correa's determination. Argentina's 2033 Par bond nearly equaled its historical lows of 2008 in closing bid at 15 ¾'s, only ¼ point beyond the actual market minimum for this period. Venezuela's 2027 Global dropped to 54, off nearly 1 ½ points on the day, and marking its lowest close on a price basis since Oct.29. The rest of the debt market presented a tiny negative drift, which denoted slightly increased risk surroundings. US Treasuries made new low yield terrain at 2.51% for the 10-year note, while the 30-year paper finally cracked through the 3% barrier in trading at 2.96% yields in late NY hours, both of which should had served as support for LATAM paper, but this was not to be. US equities looked nervous in reaction to the Madoff ponzi scheme news (S&P -1.3%), transmitting reduced confidence in risk tolerance throughout the day. We'll call the USDollar performance quiet erosion, as a steady negative slippage led the greenback all the way to 1.3700 against the Euro, while the USD/JPY rate hugged the 90 handle. The normally inverse correlation between the USD and commodities continued to dwindle. Copper proved particularly troubling for LATAM as March futures closed below the US$1.40 p/lb threshold. Regionally most of the bourses also reflected contagion from US equity jitters, with the major indices lower by -1.7% (IPC) and -2.7% (BOVESPA), respectively. Statements from Brazil's undersecretary of economic policy on the likelihood of negative GDP figures for the 4Q of 2008 (-1%), alongside doubts rom this official on the possibility of repeat of negatives in the 1Q of 2009, set the bear wheels in motion on the BOVESPA. Among currencies the MXN used the cover of a pending 50 bps cut by the FED due today to rally, with advancing taking the spot level to 13.3035, up nearly 2% on the day.

Brazilian and Mexican domestic fixed-income markets took a breather as trading activities resumed, moving in lateral fashion in the run-up to today's US FED announcement on monetary policy. Tightening action, however, was still prevalent in the region through Colombia, where the TES market again compressed yields in a late adjustment to the prior regional contractions related to anticipation of CB stimuli to come in the early part of 2009. Rate action discounting at the front-end of the TES curve is still very moderate versus the CB target, while the longer part of the curve is now offering barely over +100 bps in yields over foreseeable CB interest rates. The COP would have to reverse its gains and depreciate noticeably to entice us into the long portion of this curve at current yield levels.

After a near month of market antics, intriguing bond price movements & road shows seeking support for the so-called 'illegitimate' debt position, it was President Correa who took Ecuador's matters into his own hands, very much as expected, and declared a unilateral default on this nations Global bond obligations midway through Friday afternoon. After all the contradictory signals emanating from this administration, the odds were about even in the marketplace on the direction of an ultimate decision by Ecuador, as indicated by the 30+ bids in existence immediately before the announcement. Evidently, the longs lost the battle, as Ecuador's bond prices cratered as soon as the Correa decision on non-payment hit the tape. Both the 2012 and the 2015 bond dropped to 23 bid levels, while the 2030 plunged to 20, with losses for these bonds ranging from 9 to 10 points. Of interest to investors, these bid levels were 3 to 4 higher than the lows hit when Ecuador announced the usage of the grace period to decide on paying the coupon for the 2012 Global. Also worth observing, offered prices didn't immediately drop remaining in the mid-30's, though a lack of liquidity and some doubts about the road to come with restructuring likely was to blame for this pricing feature. The fallout into the broader market was limited to the high-Beta camp. Both Argentina and Venezuela moved negative in $ price terms, with Ecuador's default a better explanatory variable then the risk climate on the external front. Argentina's 2033 Discount bond dropped back to 27 bid, off 1 point on the day. Venezuela endured stronger pain. Global 2027 bonds were bid only at 55 7/16's as NY closed, off 3 5/16's on the day. Aside from the Ecuador drama, the LATAM debt market observed developments in the other current soap opera, that of US automakers and potential rescue funding appropriated by US Congress. The story here was one of additional risk aversion generation, as US Senators again ignored the perils of US equity markets in determining a defeat of the proposed US$14B immediate assistance under consideration. It was only intervention by the White House, through their message that the TARP was under consideration for use as a substitute in rescue funding, which avoided another sinking of US equity values. US equities wobbled, put ultimately pulled into positive terrain (DJIA & S&P +.7%), though 2.57% yields on US 10-year paper said that investors were still anxious in regard to US politics yet again. The USD remained weak against both the Euro (1.3362) and the JPY (91.07), but this failed to inspire the commodity contingent (copper lower to US$1.46 p/lb), indicating the weight felt in the markets by lowly US retail sales for November (1.8% mostly on gasoline) and the very weak figure for weekly unemployment claims. Tax stimulus in Brazil left the BOVESPA on the upside (+2.2%), while the US automaker battle continued to press as ballast for both the IPC (-1.3%) and the MXN (-2.4% to 2.5675). Some risk pass-through booted the BRL to moderate losses (-1.4% to 2.3990), contradicting the psychology working through the BOVESPA.

Brazil's NTN-F curve continued to steepen yesterday, as the euphoria related to the CB comments on rate easing to come gave way to some profit-taking in the long-end of the curve after a solid bout of consecutive advances. Yields at the Jan/2010 maturity are now discounting at least a ¾ point drop in the SELIC, while the longer-dated curve still incorporates some inflationary uplift. The instability gripping the BRL is still a major consideration in evaluating this curve from the long side. Levels towards 2.50 in the USD/BRL look buyable for this curve, assuming that these levels are the lowest in discounting the assumed SELIC rates to come.

Colombia's TES market has surprised us in its conviction to rally towards lower long yields throughout the week. Again, as with Brazil and Mexico, this domestic fixed-income location appears to be over-assimilating eventual local rate cuts, with the yield declines at the long-end flattening this curve too quickly, when shorter-duration paper has yet to extend beyond one small rate cut to come. Our sensation is that the COP has been overly resilient for all the external mayhem that has played out and also for the relative decline in LATAM currencies. Prefer to stand aside here for the meantime.

Most LATAM asset classes received a shot in the arm yesterday from a source that had been on the backburner for quite some time. Bear sentiment on the USD returned, placing this currency on strongly defensive footing against the Euro (1.3344, -2.5%) and the JPY (91.50, -1.3%). There were diverse elements involved in this shift of direction for the greenback: as anticipated, the US Senate remained inoperative on the US auto bailout, creating more anxiety waves related to the employment side of this theme. US weekly unemployment claims spiked to +573K, elevating the 4-week average to 540K and creating more havoc in regard to the perceived weakness of upcoming US employment data. US exports, a pillar of past growth in US GDP, continued to slide in the latest offered trade balance data corresponding to October (-2.2%), adding to jitters on the 4Q US GDP tally. Then the entire universe of US financial assets had to deal with statements coming from the CEO of the now largest US commercial banking concern, who qualified performance in the 4Q for this entity as 'terrible', pointing to the well-known combination of mortgages, credit, high yield bonds and loans as the culprits for such pain. Investor focus on the US side rapidly re-grouped and steered towards the financials once again, forcing the equity markets to drop (S&P -2.9%, NASDAQ -3.7%), and also bathing the USD in negative light. But there was a silver lining to the unraveling suffered by the greenback: commodities proceeded to rally, as did LATAM currencies at-large, in similar mode to what the category was accustomed to right before the credit crisis pulled the rug out from under investors in the region. Crude oil climbed 10% to US$47.90 p/barrel, while copper scored gains to US$1.5120 p/lb. Most major LATAM currencies combined positive catalysts of a weakened USD and recovering commodities to rise strongly. The BRL climbed swiftly to 2.3660, higher by +3.3% on the day, while both the MXN and the COP enjoyed advances of over +1.4%. Regional equities, however, were handcuffed by the retreat across US equity indices and the perception of added economic weakness. This placed negative signs across the major markets, though in moderate form (BOVESPA and IPC lower by a little over -1.2%). News flow in the region also pointed to improved dynamics for regional stability and growth. Though Ecuador kept investors guessing on the debt front (roadshow by Finance Minister Viteri offered the same sign of ambivalence and dependency on President Correa to justify current actions), a local news story in the El Comercio newspaper indicating that this nation had re-purchased US$680MM of debt paper (about 17% of outstanding USD debt) tilted the bias to near certainty in continuity on the debt servicing front. Prices for Ecuador's 2012 bond were quite interesting, as this credit lurched forward to being offered at 45, a gain of over 12 points from the prior day. Bids were uneven, so the real magnitude of this move wasn't totally verifiable. Brazil again charged ahead with new fiscal stimulus measures, determining a cut in taxes on salaried workers in lower tax brackets (total package for US$3.6B), while also announcing the extension of loans to corporations with foreign debt maturing in 2009, through the use of international reserves in an amount pegged at above US$10B. Mexico was the recipient of important multi-lateral pledges on 2009 funding, as the IADB indicated the potential commitment of about US$1B for anti-poverty programs, while the World Bank indicated US$3B in support through a credit line. The perceived bolstering of finances, and fiscal stimulus in these two LATAM powerhouses, moved the debt market forward. Brazil's 2037 Global added 1 ½ points to bids, leaving this credit holding a 99 ½ price on this side of the market. Mexico's 2031 benchmark climbed 5/8's to close at 111 5/8's, with some added impulse in this case from another dip in US Treasury rates to 3.067% for 30-year bonds.

LATAM concentration switched to the regional front yesterday amid calmer US equity surroundings and a waiting period involving further US action on the matter of the automakers. Central banks were firmly in focus, as the COPOM in Brazil decided to leave rates unchanged under unanimous vote. However, this policy committee transmitted a clear message of monetary stimulus to come through a very detailed statement that actually described the discussion of such measure before voting for no change, a manifestation that is clearly aimed to reassure the markets that this CB is not behind the curve in assessing the intensity of the global slowdown at hand. Peru's Central Bank incurred in similar inaction, leaving the benchmark lending rate unchanged at 6.50%, but provided covert stimulus through the reduction of the reserve requirement for accounts denominated in USDollars by 5% to 30%. Both decisions appeared to confirm market sentiment that has increased heavily to the side of loosening monetary cycles to come across the continent. Venezuela was the odd man out regionally thanks to the actions of ratings agency S&P. Placing the outlook for both this sovereign and that of national oil company PDVSA at negative, versus the prior stable, S&P cited the lack of velocity in adjusting expenditures amid plummeting oil income as a primary concern generating the announced measure. Both Venezuela sovereign paper and PDVSA debt suffered a direct bear impact from the pronouncement. Most noteworthy was the 4 ½ point drop in bid prices suffered by the 2027 Global, which closed at 59, greatly reducing the effectiveness of the recent buyback effected by Venezuela with the sole purpose of pumping up bond prices. PDVSA's Global bonds were also knocked for a spin, with the 2027 and 2037 maturities now bid at a very lowly 28 ½. Brazil and Panama spearheaded the bull side of the LATAM debt camp. Brazil's 2034 Global obtained another recovery high on the bid side at 108 3/8's, up another 1 3/8's points, affirming the strength of the Christmas rally sweeping through core LATAM sovereign bonds. Panama's 2027 Global, a bond we've repeatedly stressed as a laggard due a bump to higher prices, scored a 3 ½ point gain to 99 ½, leaving spreads from this side of the market inside of 600 bps. Domestic LATAM financial markets also experienced positive drift. Equities responded positively to guidance provided by US equities through 1% gains for both the S&P and the NASDAQ and also to a smallish upside bounce by commodities (crude back to US$43.50 and copper back to US$1.4740 p/lb.). The BOVESPA added +2.7% in installing itself at 39,000 levels again, while the IPC mustered a +1.2% advance. All the major regional currencies were in appreciation mode, though the intra-day changes were relatively modest. Brazil's BRL traded below 2.45 after struggling in recent sessions, gaining over +1.3% on the day.

The COPOM's decision to leave the SELIC reference rate unchanged didn't perturb the bullish sentiment still moving across the arena of the NTN-F's in Brazil, as this security grouping again undertook another surge towards lower rates. Yields on the Jan/2010 NTN-F are now 75 bps below the current SELIC, which discounts more than one upcoming trimming of interest rates. This curve steepened intra-day, with the degree of steepness our interest for positioning purposes, certainly looking for a flatter structure. Colombia was the other market of note in the local fixed-income camp, also discounting longer-term inflation expectations to the downside with a strong drop in yields to both the 2015 and the 2020 TES to levels below 11.50%. As with Brazil, the play along the TES curve may not be one of outright positioning but rather playing the curve for some flattening action ahead.

The debt markets version of the Santa Claus rally remained on good footing yesterday, fending off a complex negative mix of external signals. The region provided some dated, but nonetheless impressive, look-back growth figures for Brazil, with this nation posting an unexpected y/y surge in GDP to +6.8% for the 3Q of this year. This figure had minimal pass-through into intra-day prices trends in Brazilian assets, but gave wind of the momentum carried by this economy into the teeth of the credit crunch in the 4Q. Brazilian sovereign paper remained unmovable, which is the greatest positive currently on the board for the entire LATAM debt universe. Brazil's 2025 Global added ½ point to bid levels in closing at 110 ½. Beyond this country-specific development, LATAM received an influx of uncertainties again from the US side and beyond. US equities turned to the downside, reflecting a return to the tough realities of bleak earnings outlooks for the immediate period ahead (DJIA -2.7%, S&P -2.3%). Luckily, the trickle-through into the commodities realm failed to materialize, as crude oil barely budged to the downside (US$42.44 p/barrel), while copper failed to break range lows (closed at US$1.44 p/lb). Negatives out of the UK, France and Russia on exports and overall levels of production placed the global recessionary scenario again at the top of market focus, though as stated LATAM refused to heed any of these risks. US Treasuries were again valuable support for debt paper, as 10-year notes reverted to 2.65% yields, while the 30-year US bond restarted an assault on the 3% level (3.04% close). Ecuador encountered some less confident surroundings as we wind towards the decisive period over the weekend on bond servicing. The case of cold feet prompted both the 2015 and the 2030 bond to slip slightly, with bids of only 28 ½ mustered, a loss of over 2 points in each case. Panama and Peru, again belatedly, made up some ground on the debt scoreboard. Regionally, both equities and currencies were less than invigorated by the US setback, though losses were well contained. The BRL showed minor signs of life, mostly due to the repeated efforts of the CB in intervening. The USD/BRL spot recovered to 2.4790, up over +1.2% on the day, a level of gains similarly shared by both the CLP and the COP. Only the BOVESPA produced negative, but mild, trending in tandem with US equities (-.83%).

In the domestic fixed-income realm only two minor developments were of note. Colombia, normally a drifting counterpart to the more active Brazil and Mexico duo, produced some flattening, as the Jul/2020 TES edged inside of 11.70% yields, in delayed reaction to the expanding expectations of lower rates to come. Brazil's 2017 NTN-F sputtered in minor form as an off-shoot of the higher than anticipated growth data for the 3Q. This allowed yields for this paper to march back up above 15%. In all three of these markets we view yields as overly tight versus the risk picture still at hand.

LATAM debt not only kept momentum in its favor as trading activities re-opened yesterday, but also made some important inroads suggestive of a price breakout on the upside. The catalysts for the marketplace were produced on Sunday, as US President-elect Barack Obama again pushed his support for massive stimulus into the US economy, while reiterating the need for an auto bailout. This latter scheme had just about materialized at the end of the day yesterday, though in smaller dimensions than those requested by the US auto-makers and assumed by the marketplace (US$15B). Nonetheless, the specter of a late December Chapter 11 filing continued to ebb from the markets. As expected, the growing size of any economic stimulus by the new administration cheered the US equity crowd, which again set in motion another wave to the upside (DJIA +3.5%, S&P 500 +3.8%). The supposed massaging of US demand rapidly filtered down into crude oil, where prices rose to over US$43 p/barrel from last week's lows of US$40 and into base metals, where copper enjoyed a solid boost back to US$1.51 p/lb for March delivery. In defining what was actually a risk-reduction session for LATAM sovereigns, US Treasuries moved towards moderately higher yields, led by the 2.75% observed in the 10-year bond. Spread compression ensued, alongside solid price gains for core credits throughout the category. Brazil's 2034 Global returned to 107 bid prices, up over 2 points on the day. The 107 handle hadn't been experienced since early October in this paper. Mexican sovereigns rallied over 2 points for long-duration paper. We'll highlight the gains in the 2034 Global which moved higher by over 3 points to sport a 94 bid handle. Panama, a credit we have repeatedly identified as undervalued in the current context, moved higher by 2 points to 97 ¼ on the bid side, though we still deem there's added upside to come. The only bond-related development worthy of mention in the region pertained to Ecuador. Policy Minister Patino kept long holders guessing in finally admitting to the role of crude oil prices in setting the ultimate policy on debt servicing and pending coupon payments. Notwithstanding the negative connotations carried by this assertion, bond prices for Ecuador's three credits remained firmly bid in the vicinity of 30. Regionally, the rallies in the IPC (+5.4%) and the BOVESPA (+8.3%) were the noisiest of consequences generated by the growing US optimism on stabilization and help for the auto industry. The element of discord came through the BRL on the currency front. The BRL again depreciated versus the USD by a heavy -3.3% to close above 2.51, again placing the CB in Brazil under the microscope due to the assumed increase in rate cut expectations.

The rally affecting the domestic fixed-income markets in LATAM remained intact. The improved external climate for risk simply added to the prior impulse rendered by widespread expectations of a cycle of loosened monetary policy to come in the region. Beyond what we deem to be low absolute yields in the three curves that we follow, Brazil, Colombia and Mexico, relative value seems to be the building potential play for profits across these domestic bond line-ups. Mexico's M-Bond curve still shows a steep skew, with the Dec/2010 and the Dec/2016 bond differentials falling into this category, while the NTN-F curve also presents similar steepness, though at a more extended duration interval involving the Jan/2010 bond and the Jan/2017 instrument.

LATAM sovereign debt closed out the trading week on a relatively sideways note last Friday, which was quite surprising given the two extremes of influences offered-up by the external markets. US payrolls for the month of November tallied an incredible fall of -533K, while the accompanying revisions to the two prior months were also strongly adjusted to the downside, leaving the overall decline in US employment for the September/November period at an astounding -1.256MM jobs. Instead of the foreseeable free-fall in US equity markets that would have again ignited a fire under those holding LATAM exposure, the major US gauges countered with rallies that actually cancelled-out the heavy bear plunge of Monday, December 01. The underlying rationale for such action remains a mystery, though some moderate positive signals from US Congress on the auto bailout certainly was in the mix, while numerous bulls pointed to US unemployment as a lagging indicator, with the latest figures indicative of a bottom (?). Some extreme price gains for members of the insurance camp also were identified as catalysts moving US equities. Whatever the reason, this kept the markets from coming unglued again. In our view we believe to have seen this movie before: the Friday recovery amid historically dismal news, followed by the return to reality over subsequent days. Commodities prices were crushed amid the specter of a submerging US economy. Crude oil prices tumbled to US$41.74 p/barrel for January delivery, while copper prices rolled down to US$1.40 p/lb. Even US Treasuries lost their luster as LATAM debt supporters, though this obviously had a direct relationship with the advance along US equity indices. 10-year yields crept higher by 11 bps to 2.71%, while the 30-year bond moved back to 3.12% from Thursday's 3.07%. Among the LATAM debtors, only Ecuador stood out for domestic political developments, this time under actual real positives, as the President of CAF revealed that this entity would provide loans of up to US$1B for Ecuador. In an expected development in Venezuela, President Chavez indicated that he would fast-track his initiative for a Referendum on reelection. Ecuador's 2012 Global upped its bid level to 32, rising 1 ½ points in nullifying any effects of the latest threats surrounding non-payment of the due coupon from authorities in this nation. Venezuela's 2027 Global made a stand at 63 ½ bid, shoving aside the negatives from the crude oil pits, at least for a day. Regionally, equity markets gathered little steam of that transmitted by Wall Street (BOVESPA up only +.6% and IPC +.8%), while strong intervention by the BCB helped the BRL reverse course in gaining to 2.4293 against the USD (+2.9%).

The supporting framework for LATAM debt trading continued to absorb diverse cross-currents, in particular from the external environment, yesterday. Anticipation of a poor US NFP figure for November and high continuing weekly unemployment claims kept matters on the defensive from the US side, with complicated advancement for the pending rescue of US automakers on Capitol Hill also weighing on sentiment. Security risks coming from India also briefly re-entered market psyche. The counterbalancing factors were centered on the heavy rate cuts enacted by both the ECB and the BOE during European hours, which extended the breadth of the ongoing global monetary stimulus. Ultimately, the specter of overwhelming factors pointing to US economic weakness (dismal November same store sales at the core of this facet) overwhelmed the markets, pushing US equities lower by near 3% for the S&P500, while forcing US Treasuries into another dazzling spin to the downside in yield terms (10-year notes now at 2.59% and 30-year closing in on 3% very rapidly). Such evolution, alongside another drop in crude oil prices (January WTI at US$43.44) and copper (US$1.4640 p/lb), placed the balance of price drivers against the positive recent trend in LATAM debt prices. However, for the most part the category reacted in larger degree to domestic elements in building the daily table of relative performance. Ecuador continued to play mind games with the markets. On this occasion Policy Minister Patino and Finance Minister Viteri made strong statements as to the intentions of this nation to search for a method of halting payments on all Global debt instruments. After easing off bid prices, the market came right back, with bids on the 2012 Global actually climbing to 32, up over 1 point on the day. Venezuela was again crunched by the oil slide. Prices for the 2027 Global slipped by 1 ½ points to 63 ¼ bid. Argentina unveiled another stimulus package, alongside tax cuts for grains exports. In doing so the Kirchner administration also admitted to the need to use the funds of the AFJP to finance such initiative. This again cooled investor interest in the credit, with the 2038 USD Par backing to 16 ¾ bid, a loss of ½ point. Regional equities only absorbed minor heat from the US drop (IPC -1.2%), while the currencies arena traded laterally in a surprising display of decreased volatility. Sole exception proved to be the ARS, which slid to 3.44, off nearly 1%.

Brazil moved outside of the rate compression picture in the local LATAM fixed-income markets, while Colombia and Mexico produced moderate reduction moves. Both of these latter curves initiated ruptures of key rate benchmarks on the long-end, with the TES curve now firmly inside of 12% for the 2020 maturity, while the 2024 core credit along the M-Bond curve pushed inside of 9% yields. Though repetitive, these LATAM markets continue to march under the impression of soon to be initiated rate-cutting cycles. The upcoming test will be for the yield/FX rate trade-off, as the specter of lower official rates ahead appears to have re-ignited the flight away from currencies in the region and back towards the USD.

The chips were stacked mostly against the LATAM debt camp during Wednesday's trading session. As usual, US economics had a large role in setting such tone. Monthly US employment as measured by ADP, crashed by -250K, the non-manufacturing rendition of the ISM hit record low levels, while the employment index contained in this index caved in by 10 points and the FED's Beige Book produced nothing but worrisome descriptions of broadening contraction in the US economy, with added worries attached to the confirmed compression in lending, alongside stricter credit conditions. In adding to the recession anxiety of the LATAM region, both crude oil (US$46.88 p/barrel) and copper (US$1.5420 for March delivery) remained under pressure as an off-shoot of the US data. But the blood failed to hit the streets again as some potentially critical compensating elements related to US housing made their way into market psyche, shocking the US equity indices into a wild roller-coaster ride that ended up producing gains of +2.6% for the S&P500. Data from the Mortgage Bankers Association showed that mortgage applications for the week ended November 28th catapulted forward by 112%, a record for this index. The rush was linked to the FED's decision to buy both GSE and GSE-guaranteed paper, with corresponding fall in 30-year mortgage rates by over 50 bps to 5.47%. A media report circulated in late afternoon, affirming that a new plan from US Treasury was in the works to force mortgage rates down to 4.50% through apparent additional acquisition of Fannie, Freddie and FHA-backed paper added fire to the flames of intra-day optimism ignited under the US housing theme. Regionally, market behavior appeared to split between two different influences. On one hand the watch for interest rate cuts intensified, which fed into lower domestic yields in all the major local fixed-income markets and helped give equities a slight boost (IPC +1.7%, IGBC +2.1%), while on the other hand the sensation of expanding economic depression & lower commodity prices blended with the rising expectations for lower rates to pull the major regional currencies to the downside, with the BRL (-3.9% to 2.5025, weakest since June 2005) an oversized example. LATAM sovereign debt sided with the supposed positives appearing in US housing markets as a valid symptom of improved risk tolerance to come, which translated into firm upside for both Colombia (Global 2024 bid at 95, higher by 1 ½ points) and Mexico (long-end extremely well bid in appearance; 2034 Global hit 90, 4 higher on the day). US Treasuries also provided an added boost to the LATAM debt story through another historic day of declines in yields (10-year note closing at 2.66%). Ecuador emanated another erratic signal in regard to the ongoing saga of the 2012 coupon in floating the potential consultation of the International Courts in The Hague as a possible legal step to come. Prices for both the 2012 and 2015 Global's held firm, but the bid for the 2030 Global withdrew to 23, which we weren't able to confirm as a valid retraction in dealer interest. Venezuela swam against the current of lower oil prices and the recently announced bid to resurrect the re-election proposition on the part of President Chavez. Vene's 2027 Global added 3 ¾ points on the bid side to close at 64 ¾'s, partially off-setting the losses of early this week.

It was a mixed bag for LATAM sovereign bonds yesterday, with high-Beta paper providing both extremes as far as performance is concerned. Crude oil prices were a definite price-driver of relevance, though only one of the two major oil-exporting nations in the region absorbed the latest shock in prices. Prices for January WTI crude closed at the depressed level of US$46.96, increasing the obstacles ahead for both Ecuador and Venezuela. However, it was only this latter credit that suffered a noticeable haircut in bond prices as an offshoot of the latest crude dive, while Ecuador dealt with the swerving sentiment surrounding its intentions to make good on coupon payments for the 2012 Global. Venezuela's 2027 Global dropped to 61 bid, a loss of 3 points on the day, while Ecuador's 2015 bond jumped 2 ½ points to the upside to close at 31 ½. The differentiating factor for Ecuador came via a government announcement that it had hired US attorney Paul Reichler from the Foley Hoag law firm to advise this nation on possible options related to 'illegitimate' debt. Market read on the development pointed to an Ecuadorian administration likely to pursue a dead-end legal alternative, but at the same time staying current on debt payments. Such conclusion was the moving force behind the added price pop in our estimation. Core credits on the LATAM debt run appeared relieved by a combination of external positives. Australia kicked off what is expected to be a week full of additional non-US interest rate cuts aimed at stimulating economies around the globe (ECB and BOE loom large in this sense), while US automakers appeared at least to pass initial muster with US Congressional democrats in their return to Capitol Hill seeking assistance. Some improved psychology followed on US equity markets, notwithstanding the usual whipsaw volatility (DJIA +3.3%, S&P +4%), allowing some marginal respite to flow into LATAM equity indices (IPC +1.4% leading the way). It was only the MXN that absorbed anticipated positives from the realm of US automakers, as this currency rose +.8% to 13.54 on the day. The BRL went in the other direction due to lack of CB participation in the currency arena, with losses amounting to a large -2.7%, which left the spot rate at 2.4087.

LATAM sovereign debt prices made it out of the gates for December with very minor losses yesterday, a positive given the sudden veer to sharply deteriorating conditions on the external spectrum. Severe deceleration in manufacturing across Europe and in China served as the igniter for yet another dive across US equity indices (S&P and NASDAQ both near -9% on the day). Accompanying this bear catalyst stood increased global risk aversion coming from last week's terrorist attacks in India, news related to more hedge fund withdrawal restrictions that simply pointed to the continued pressure faced by these vehicles under current financial market conditions and statements coming from FED Chair Ben Bernanke describing a still unstable US economic panorama on hand. The US also added its own contribution to the panorama of a strongly pressured global economy through the latest rendition of the manufacturing ISM, which fell to its lowest levels (36.2) since the 1981/1982 recession. Crude oil proved to be the most relevant of the commodities caught in the downdraft created by the reduced global manufacturing picture, with the front month contract closing below US$50 p/barrel. The one source of positive impulse for the LATAM debt universe came again from the US Treasury universe, where US 10-year notes dove to 2.722% yields, while the US 30-year note declined to 3.21% rates. Deflation seemed to be on the minds of the bulls here, with Chairman Bernanke's affirmation indicating the possibility of FED purchases of long-term Treasury instruments as a last resort creative solution to near zero FED fund rates the other detonator. In LATAM news developments were concentrated in Venezuela, as President Chavez again proposed a constitutional amendment that would allow for his re-election. Nonetheless, Venezuela's Global bonds held firm from last Friday's levels. Most of the negative pass-through engendered by the external markets wound-up in the LATAM equity realm, which saw the both the IPC and the BOVESPA drop by 5%. Currencies were moderate in their absorption of the risk aversion message from external shores, dipping between 1.50% and 1.8% for the MXN and the BRL respectively.

It was a holiday-shortened trading session that put an end to the trading week last Friday, which meant that trading volumes and participation were quite meager. The terrorist attacks in India were the biggest piece of market news on the day, though the sense of risk aversion normally attached to these tragic events didn't appear on the US side, perhaps obscured by the reduced trading crowd. In this sense, US equities served as a positive indicator, as the major indices were able to trade out the week with gains (DJIA & S&P500 +1%), completing an entire week of intra-day gains. US Treasuries took the contrarian road, though the distinction between flight-to-safety and mortgage-related hedging has started to obscure the drivers for this market. 10-year note yields dove to 2.92% at the close Friday, yet another 50-year historical low. The sole standout feature in the LATAM debt realm came by way of Brazil, where a small markdown weighed on the 2034 Global (-1/2 point to 102), while the less liquid mid-duration paper along this curve also suffered a retraction in bid values. Ecuador bid/offer spreads tightened, leaving the 2030 Global at a 28 ½ / 29 ½ split, stronger by 2 points on the bid side, in a strong sign that investors are increasingly believing in payment to come before the Dec. 15th knock-out date for debt default. Both the BRL (-4% to 2.30) and the MXN (-1.7% to 13.42) indicated some anxiety, though this didn't relate to local equities, as these turned marginally higher with the DJIA (both up 1%). This left us with the impression that both markets weren't completely convinced as to the non-event status of the Mumbai attacks.

Domestic LATAM fixed-income ended the week on very optimistic footing on the back of solid diminution of local yields in the three major markets that we follow. Mexico headlined last Friday's events, as the CB left the benchmark rate at 8 ¼%, though market's took the tone of the announcement on the dovish side, which served as the ultimate backing for increased expectations of a rate cut into 2009 as the primary mover of shorter-duration M-Bond paper. Dec/2010 paper is the issue that is most readily discounting this potential event across this curve, as yields have now dropped below 8.10%. Spreads between this instrument and the Dec/2024 paper are barely above +100 bps, though the indications are now clear of a play towards a flatter M-Bond curve. As with past moves to this range in the long-end of the M-Bond line-up, we find this curve to be overpriced in comparison to other LATAM offerings such as the Brazilian NTN-F curve. A similar notion can be applied to the Jan/2012 NTN-F in Brazil that now stands below 16%. Spot rates for both the BRL and the MXN can be viewed as the only possible influences for those still looking at these markets from the long side.

The landscape for the LATAM debt camp continued to swing towards a more stabilized position yesterday, with the catalysts a sincere combination of positives from external as well as domestic sources for the category. Surprisingly, it was high-beta paper that through self-powered moves, lead the category in the intra-day return metrics. Argentina captured a 3 ½ point gain for the 2033 Discount bond as a by-product of new stimulus initiatives unleashed by the Fernandez administration, which included incentives for corporations behind on taxes and also for the repatriation of capital, with this latter measure full of lowered tax rates for investment in infrastructure/domestic fixed income markets. Ecuador continued to play a mind game with debtholders. The tone in this regard has definitely swung towards more neutral ground and away from the fierce promises to go to extremes on eradicating 'illegitimate' debt. Foreign Minister Maria Salvador produced the most positive observations for Ecuador's sovereign debt creditors in stating that this nation would challenge the legality of foreign debt through international courts, while emphatically adding that this nation would not act outside the rule of law. Ms. Salvador's entire pronouncement appeared neatly arranged so as to indicate that Ecuador would not default, or perhaps served as a concession to long bondholders unwilling to talk of possible terms for restructuring under the cloud of a possible cessation of payments. Ecuador's 2012 and 2015 bond rose to 28 ½ bid, higher by over 3 points on the day, while offers for all 3 traded Ecuador credits jumped above 30. The new developments left us with the sensation that the situation is being manipulated by Quito, without the real intention yet coming to the surface (though the sudden price drops of Ecuador's debt instruments and recent recovery has certainly served to make some valiant investors pretty wealthy). Mexico also had some minor protagonism, but for all the wrong reasons on the economic side, as October's trade balance came in at a surprisingly large -US$2.7B. However, this wasn't enough to break the building positive momentum in this nation's debt instruments, in large part due to the heavy gains experienced by US Treasuries (10-year note plunged in yields to 3.11% from the prior day's 3.30% on mortgage related buying). Where the LATAM trend did seem to find leadership was in Brazil, as the 2034 Global took advantage of the thrust provided by lower US Treasury yields and also by yet another huge FED rescue effort on the US side, to power to 103 ½ bid, leaving prices to press against cycle highs. Externally, US markets provided some of the underlying motion for LATAM through the aforementioned new FED package aimed at buying Fannie and Freddie paper and helping to backstop securitization of US consumer loans, while another dismal Case/Schiller report on the US housing sector was obscured by the rescue announcement, the same that occurred to a mildly more negative US 3Q GDP (-.5%) announced in the revised version for this figure. The USD and its weakness (1.3032 against Euro) can also be identified as a strong driver of interest returning to riskier markets, though on this occasion this served as negligible incentive for the commodities universe (crude lost ground to US$50.63 for Jan. delivery, while copper stayed flat at US$1.65 p/lb). Domestically, LATAM produced a mixed bag in the equity arena, as the shadow of the US recession held sway. Only the BOVESPA in Brazil managed significant upside, (+1.83%) while the IPC lost ground on profit-taking (-1.19%). Currencies were led by a +1.4% gain in the MXN to 13.197, while the COP lost steam in receding -2% to 2361.

Less volatile trading surroundings gripped the local LATAM debt markets yesterday. There was one exception, out of liquidity conditions in our interpretation: Brazil's 2017 NTN-F gapped wider by 44 bps to offer yields of 17.64%, which contrasted sharply with a short-duration curve that only widened by 5 to 7 bps. Colombia and Mexico remained in tightening mode, with the latter presenting changes mostly on longer-dated paper. Mexico is in countdown phase towards Friday's CB decision on interest rates, with most of the market, including ourselves, expecting an unchanged mandate at 8 ¼%, which tends to justify the mild flattening experienced over the last days. The long-end is now far from our preferred levels from which to launch and/or add to shorts, so we stay neutral on long-only positioning along the M-Bond curve.

It was another working weekend for the global financial markets, as the US announced yet another rescue initiative on a Sunday night. The object of US government funding this time around was the formerly largest commercial banking institution in the world, which had been at the top of the short-sellers target list in the US during the past week. The massive dimension of such initiative (US$20B cash, backstop for losses of up to US$306B) soothed the systemic risk anxiety that had been widespread before last Friday's trading session. US President-elect Obama also had a hand in the large improvement in risk-taking measures upon completing the designation of his economic team that includes two heavyweights in the financial terrain (Geithner & Summers). US equity indices completed their most bullish back-to-back trading session since 1987, with advances hitting above +6.3% for both the S&P500 and the NASDAQ. US Treasuries provided plentiful incentive for some major spread tightening versus LATAM, as the flight-to-quality trade grew interrupted, at least for a day. 10-year US notes bounced to 3.318% yields, while the 3-month bill (.13%) lost the 0% return that had been plaguing this paper all of last week. The USD was an interesting player in the intra-day action of bullish US markets. Spot rates against the Euro showed the greenback in strong retreat, with price levels hitting near 1.29 in late NY hours. Many cited the lessened risk aversion as the propelling factor for the buck. However, we'll stand and pay closer attention to the voices speaking of concern over the mounting debt load assigned to US coffers on the repeated rescue efforts in the financial sector as a catalyst for the USD weakness. One market that was motivated by the US drop was that corresponding to commodities, where crude oil lifted back to US$54 p/barrel for December delivery, a gain of over 9%, and Copper jumped over 9 cents to US$1.67 p/lb. Intriguingly, Gold and Silver put in strong bull rushes, with the former up over US$28 p/oz to US$821.60 for April futures, while the latter spiraled higher by over 87 cents, in closing at US$10.36 p/oz levels. Our interpretation was that this rise was linked to the Dollar slide in the underlying suspicion that higher US debt levels are becoming overbearing for the US economy. In LATAM, Venezuela had a protagonist role not only due to the recovery in oil prices but also due to the weekend elections in Venezuela, where the opposition managed some solid gains in large urban areas, making the path of support for President Chavez somewhat more contested. Venezuela's Global bonds of 2027 climbed 3/4 's of a point to 65 ¾'s pointing heavily to crude as the determining factor on the day. Brazil's intra-day performance was worthy of note as a benchmark of the debt asset class. Key credits such as the 2034 Global rose strongly on the day (to 101 ¾'s in the case of this bond, up over 4 points on the bid side) pointing to some anticipation to a year-end push to window-dress the market. The outburst in the regional equity indices was enormous. The BOVESPA headed-up this list in rising over 9% on the day, with the IPC riding shot-gun in recording gains of 7%. In the currency arena, the BRL surged by +6.4% against the greenback to close at 2.3163, leaving the rest of the LATAM camp in the dust. Second level advancers were the MXN and the COP at +2%.

Tumbling spreads was the common denominator throughout the domestic LATAM fixed-income spectrum. Steepening across the NTN-F realm in Brazil left this curve with yields below 15% for Jan/2010 maturities, while Jan/2017 paper closed in on the 17% mark. The differential between these two instruments rose to +230 bps. We would steer clear of the front-end, finding current levels too low for the still undefined external environment. However, the lower yields on the long-end still find some support from a BRL changing hands above the 2.30 level.

Mexico followed similar evolution across the M-Bond curve. Long-duration spreads compressed below 9.70%, detracting from the appeal we felt closer to 10%. However, as in Brazil, the MXN above 13.35 compensates for the shift in the risk/reward equation to a degree. Current yields look far from encouraging for added long positions, thus we would prefer to stay to the sidelines here.

Just as it looked like the US and LATAM financial markets would endure another end-of-week period marked by skyrocketing risk aversion translated into battered equity indices, along rode the incoming administration of US President-elect Barack Obama to the rescue last Friday through its announcement of the appointment of US Fed President Tim Geithner as the point man in Treasury starting Jan. 20th. At least for a brief closing moment, the cloud of despair lifted from the financial markets, allowing the lead anxiety indicators, US equity gauges, to finish on positive recovery footing (DJIA +6.5%, S&P500 +6.3%). The prior part of the day had been spent meticulously observing the spiral in the price of the US commercial banking institution that formerly held the title of 'largest' in this category, with gyrations bringing about increased speculation in regard to added government assistance or a break-up of its parts, as a merger with one of the two large remaining investment banking institutions seemed to encounter little favor. The positive psychological impact of the Geithner nomination also helped the US Treasury market from furthering its implosion towards lower yield levels. 10-year notes jumped above 3.24%, while the 30-year hit near 3.69%, though both held in terrain identified as risk aversion ground. The more animated US surroundings helped crude oil (US$50 p/barrel) and copper (US$1.61 p/lb) to stabilize, which was a common denominator with the LATAM debt camp. In this category, we'll highlight the reversal by Brazil's 2037 bond to 90, a gain of $2 and Venezuela's slight pop to 65 for the 2027 Global. This credit had specific backing, as Caracas confirmed a recent buyback that involved this particular instrument. No breakdown was made available, though the total amount of the transaction, including other unspecified instruments, hit US$800MM. Ecuador also deserves a particular mention. Both the 2012 and the 2015 bonds firmed ever so slightly to 25 bid, 27 offered, indicating either a modest amount of short-covering, or some bottom-fishing by vultures sensing some opportunities given the buyback exercised by Venezuela and the linkage between these two nations. The whipsaw US equity wave hit Brazil in only a bearish direction, with some pent-up selling from the prior day's holiday also at work in driving the BOVESPA lower by -6.5%. The IPC was able to catch both sides of the wave in positing a very slim, but positive gain of +.33%. The same divergence stood in the currency markets, as the MXN gained to 13.68 on the Geithner reversal, while the BRL headed into new low terrain on closing at 2.4757. The CLP also was curtailed in its efforts to turn on the US inflection, with this currency holding losses of over 2.8% in closing at 682.50.

Given the hectic and volatile external environment, domestic LATAM fixed income markets were relatively calm in their response. Mexico was particularly subdued, though we'll again stress the shrinking differential between USD Global Mexican curve and the domestic MXN M-Bond line-up. The MXN cut its losses late in the day, which reduced the opportunity to view this curve through severely depreciated levels for the currency would have added some attraction to the overall equation. Nonetheless, a 10% yield at a minimum still stands as a necessary threshold to consider adding longs.

Brazil had some yield expansion at the short-end of the curve, with the long-end lagging. Possible combination of the post-holiday period and complicated external read likely promoted this condition. Jan/2010 vs Jan/2017 spread reduced to +211 bps, a level still workable for some flattening. Run of the BRL all the way to 2.47 compensates for the lower yield now holding at the long-end of the curve, making long accumulation a still attractive proposition.