EM LATAM CREDIT: MNI EM Credit Market Wrap - LATAM (07 Mar)

In local morning trade, NZGBs are 1bp richer after US tsys finished near late session highs, with yields 3-11bps lower and the curve flatter.

• Lower than expected ISM Services data spurred heavy buying across the board - ISM Services missed expectations at 52.8 (54.0 expected, 54.0 prior), with pullbacks prevalent in some key categories.
• ADP employment was stronger than expected in January at 183k (cons 150k) along with a solidly upward revised 176k (initial 122k) in Dec. Meanwhile, December's goods and services trade deficit was slightly wider than thought at $98.4B.
• The focus remains on Friday's headline employment data for January.
• Meanwhile, there was no change to Treasury guidance on future issuance in the February Refunding policy statement, a modest dovish surprise versus many expectations that it would be watered down.
• Swap rates are unchanged.
• RBNZ dated OIS pricing is little changed. 49bps of easing is priced for February, with a cumulative 126bps by November 2025.
• The local calendar is empty for the rest of the week.
• Today, the NZ Treasury plans to sell NZ$225mn of the 4.50% Apr-27 bond, NZ$225mn of the 2.00% May-32 bond and NZ$50mn of the 2.75% May-51 bond.

Details of the Fed's 2025 annual bank stress test released Wednesday are here.

• Here's the scenario that will be posed to 22 banks: "In the 2025 stress test scenario, the U.S. unemployment rate rises nearly 5.9 percentage points, to a peak of 10 percent. The unemployment rate increase is accompanied by severe market volatility, a widening of corporate bond spreads, and a collapse in asset prices, including about a 33 percent decline in house prices and a 30 percent decline in commercial real estate prices."
• (2024's edition: "The U.S. unemployment rate rises 6.3 percentage points from the starting point of the scenario in the fourth quarter of 2023 to its peak of 10 percent in the third quarter of 2025. The sharp decline in economic activity is also accompanied by an increase in market volatility, widening corporate bond spreads, and a collapse in asset prices, including a 36 percent decline in house prices and a 40 percent decline in commercial real estate prices.")
• The Fed also released two "hypothetical elements designed to probe different risks through its "exploratory analysis" of the banking system. The exploratory analysis will not affect bank capital requirements.. this year's exploratory analysis includes two separate hypothetical elements that will assess the resilience of the banking system to a wider range of risks. One of the hypothetical elements examines how banks would react to credit and liquidity shocks in the non-bank financial institution sector during a severe global recession. The second element of the exploratory analysis includes a market shock that will be applied only to the largest and most complex banks. This shock hypothesizes the failure of five large hedge funds with reduced global economic activity and higher inflation."
• The list of 22 banks, and whether they are subject to the exploratory / global market exploratory scenarios, are below.
• Results will be published in June. The 2024 results showed "that the 31 large banks subject to the test... have sufficient capital to absorb nearly $685 billion in losses and continue lending to households and businesses under stressful conditions."

• The NZD rose for a second straight session as the USD takes a breather, the NZD/USD is 0.65% higher at 0.5688 and is now 3.11% off the lows made on Monday, the pair is now trading just under key resistance at 0.5707 (50-day EMA) a level we have been unable to trade above since early October.
• The moves were supported by waning global trade war risks that have weakened the USD, however the USD regained some ground after strong ADP employment data, which showed 183K private-sector hires in January (above the 150K forecast).
• Despite this, New Zealand's economic outlook remains uncertain, given its trade ties with China amid escalating US-China tariffs. The RBNZ is expected to maintain a dovish stance, with rate cuts aimed at countering inflation risks.
• Technical indicators are now bullish with the MACD printing green bars, while the RSI indicator has ticked back above 50 to 55. We broke back above the 20-day EMA on Wednesday and now eye major resistance is 0.5707 (50-day EMA), to the downside a break back below the Monday lows of 0.5515, would be needed to test the 2022 lows of 0.5500.
• Expiries: 0.5525 (NZD680m), 0.5395 (NZD471.2m), upcoming notable strikes: 0.5935 (NZD411.1m Feb. 11)
• RBNZ dated OIS softened slightly on Wednesday, with the market now pricing in an 87% chance of a 50bps cut, and cumulative 127bps of cuts by Nov 2025, down from 135bps early Wednesday.
• It is a very quiet next week on the local calendar with no planned data releases