EM LATAM CREDIT: Ecuador Replaced Finance Minister, (ECUA; Caa3/B-neg/CCC+)
“Country risk rises to 1,244 points after Juan Carlos Vega leaves Finance” – Expreso
Negative for Bonds
• ECUA 6.9% 2030 last quoted $67.50, down .75 point so far on news that President Noboa replaced the Finance Minister Juan Carlos Vega with Luis Alberto Jaramillo, who was previously the head of the Ministry of Production, Foreign Trade and Investments. Bonds hit a high of $78.5 days before the Presidential election and then plummeted down to $70 after a disappointing result. We now see potential technical support at $66.25 from November 2024 and then $65 from August 2024 levels.
• January 23, 2025 we posted and article from local newspaper Expreso, “ECUADOR PROSECUTORS TARGET FINANCE MINISTRY IN PROBE”. The newspaper reported, “The main objective of these actions is to obtain evidence linked to possible acts of corruption within the Ministry of Economy and Finance. The Minister of Economy and Finance, Juan Carlos Vega , explained that the raids were carried out after the entity itself filed a complaint about possible acts of corruption.”
ECUA 6.9% 2030, $67.34, -.9
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GILT PAOF RESULTS: GBP1.00bln of the 4.25% Jul-34 Gilt sold.
- GBP1.00bln had ben available.
- This means GBP35.637bln of the gilt remain in issue.
US TSY OPTIONS: Early SOFR/Treasury Option Roundup: Call Buying Ahead CPI
Active overnight trade with SOFR & Treasury call options seeing varied trade ahead of this morning's CPI inflation data (TY midcurve call buying 2 day option in decent size, appr 4.55% yld). Underlying futures gaining, TYH5 near recent highs at 107-17.5 (+6). Curves mixed, however (2s10s -1.60 at 40.539, 5s30s +1.335 at 38.909) with short end lagging support. Projected rate cuts through mid-2025 near steady, current vs. late Tuesday levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -4.9bp (-5.1bp), May'25 -10.3bp (-10.2bp), Jun'25 -17.7bp (-17.9bp), Jul'25 at -21.7bp (-21.2bp).
- SOFR Options:
- over 13,000 SFRJ5 96.25/96.50 call spds
- over 7,100 SFRJ5 96.00 calls
- 3,600 SFRJ5 95.81/95.93/96.06 call flys ref 95.85
- 1,650 SFRM5 95.93/96.12 call spds vs. 95.56/95.68 put spds ref 95.845
- 3,500 0QU5/3QU5 95.25 put spds, 2.5 cr flattener (3QU sold over)
- 1,200 SFRZ5 99/100/101 call flys ref 95.91
- Treasury Options: (Note, Tuesday's huge TYH5 108.5 call buying saw total volume of 133,834, prelim open interest +98,051 to 129,368 this morning).
- over 31,000 wk3 TY 108.25 calls, 5 vs. 107-16.5/0.17% (expire Friday)
- 4,000 TYG5 108/108.5 2x3 call spds ref 107-17
- 5,000 TYH5 106 puts 22 ref 107-17
- 4,000 wk3 TY 108/108.5 2x3 call spds ref 107-17
- 8,000 TYH5 106/107 put spds ref 107-17
- 4,600 TYG5 107.75/108.5 call spds, 13 ref 107-16.5
- 3,500 TYH5 108/109.5 2x3 call spds ref 107-16.5
- +3,000 FVH5 107/108 call spds, 5.5 ref 105-16.5
- 2,000 TYG5 105.75/106.75 put spds trf 107-14.5
- Block, +9,000 wk3 TY 108 calls 8 vs. 107-15.5/0.25%, more on screen at 9
- 4,000 FVH5 106.5/107 call spds, 6.0-6.5 ref 105-17.5 to -16
BONDS: Underpinned Into U.S. CPI, Gilts Outperform, Periph EGBs Tighter To Bunds
Bonds remain underpinned through early NY trade, with U.S. participants reacting to the rally that followed the softer-than-expected UK CPI data.
- Bearish technical setups for core global FI intact, but today’s recovery increases the risks to those trends.
- Gilts the global outperformer at the 10-Year point following that data, with the UK curve bull steepening on the back of dovish BoE repricing.
- An uptick in benchmark European equity indices has promoted some peripheral EGB spread tightening to Bunds over the last few of hours.
- Upcoming U.S. CPI data is obviously key.
- We have seen no changes to CPI forecasts following yesterday’s PPI data (most analysts have said as much explicitly). Pre-PPI consensus for CPI per MNI medians were +0.38% M/M for headline, and +0.24% for core.
