EM LATAM CREDIT: Republic of Panama (PANAMA; Baa3neg/BBB-/BB+), Panama Canal
“US President Donald Trump vowed to 'reclaim' Panama” – Reuters
Neutral for spreads
• The Panama Canal contributes 7.7% of GDP for Panama, according to IDB, so the loss of those revenues would be very damaging but, in our opinion, seems unlikely given lack of legal justification. The closure of the Cobre Panama copper mine in December 2023 cost the country 5% of GDP. The 7.4% fiscal deficit for 2024 was worse than the projected 4.7% by Fitch and the rating agency warned a few days ago about the rising debt trajectory.
• Hong Kong based CK Hutchison announced yesterday that it was selling its stake in ports near the Panama Canal to a US consortium led by Blackrock which was thought to appease the US concerns about national security.
• According to the US Dept. of State, the United States acquired unilateral rights to build and operate a canal in perpetuity under the terms of a 1903 treaty. In 1977 the Government of the United States concluded a treaty with the Government of Panama calling for the gradual transfer of full authority and control over the Panama Canal to the Government of Panama and final transfer of the Canal to Panama took place in 1999.
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US TSYS: Early SOFR/Treasury Option Roundup: Upside Calls, Curves Twist Flatter
Option desks reported mixed SOFR & Treasury flow overnight, leaning towards upside calls on decent volumes. Underlying futures stronger, near early overnight highs after Pres Trump follows through with 25% tariffs on Mexico & Canada, 10% on China effective February 4. Heavy volumes (TYH5 near 1M at the moment), curves twist flatter as short end lags Bonds (2s10s -7.148 at 26.601). Projected rate cuts through mid-2025 vs. late Friday (*) levels as follows: Mar'25 at -3.7bp (-3.9bp), May'25 at -10.3bp (-11.8bp), Jun'25 at -19.7bp (-22.6), Jul'25 at -24.9bp (-28.5bp).
- SOFR Options
- 11,000 0QK5 97.00 calls ref 96.09
- Block, 1,500 SFRU5 96.62/97.12 2x3 call spds, 2.5 ref 95.975
- 3,500 SFRH5 95.68/95.75/95.81 call flys ref 95.74
- +6,000 SFRJ5 95.68/95.75/95.81/95.87 put condors, 2.75 ref 95.85
- 1,500 0QH5 96.25/96.50/96.75 call flys
- -19,850 SFRH5 95.00/95.62/96.00 broken call flys, 51.5 ref 95.735/0.85%
- 4,000 SFRZ5 96.00/96.37/96.75 call flys, 5 ref 96.01
- 2,000 SFRM5 95.75/96.00/96.12 broken call flys ref 95.85
- 2,250 0QJ5 95.81/95.93 put spds vs. SFRJ5 95.68 puts
- Block, 2,500 SFRU5 95.87/96.00 put spds, 7.0 ref 95.96
- 5,000 SFRZ5 96.50/97.00/97.50 call spds ref 96.04
- Blocks, +9,000 0QG5 96.31 calls, 2.0 to 2.5 ref 96.04 to -.075
- 2,000 SFRM5 96.00/96.25/96.37/96.62 call flys ref 95.875
- Treasury Options:
- -3,000 TYH5 109.25 straddles, 121
- +5,000 TYH5 110/111 call spds, 10-11
- 5,000 TYH5 107 puts, 7 ref 109-02.5
- -7,000 TYH5 108.5/109.75 call spds, 35 ref 108-30 to -30.5
- 4,000 FVH5 108/108.5 call spds ref 106-08.75 to -09
- +20,000 Monday weekly FV 106 puts, 0.5-1.5
US: MNI POLITICAL RISK - Trump Imposes Tariffs On Regional Allies
- President Donald Trump invoked the IEEPA to impose sweeping tariffs on goods imported from Mexico, Canada, and China. Trump threatened tariffs on the EU and additional tariffs on strategic sectors like metals and semiconductors.
- The move, which effectively torpedoes the USMCA, marks the first time the IEEPA has been used to impose tariffs and is likely to face litigation from Democrats.
- Canadian Prime Minister Justin Trudeau announced retaliatory 25% tariffs on more than USD$100 billion of US imports. Canada’s likely future prime minister, Pierre Poilievre – an erstwhile ally of Trump - said Canada should, "retaliate with dollar-for-dollar tariffs” and “never back down.”
- Mexican President Claudia Sheinbaum instructed her Secretary of the Economy “to implement Plan B" and is expected to give a press conference at 10:00 ET 15:00 GMT.
- Leaders from the European Union’s 27 member states will meet in Brussels today, with the bloc promising to “respond firmly” to US trade measures.
- Lawmakers offered a muted response but Republicans in agricultural and manufacturing states are likely concerned about blowback to their states' economies.
- Rohit Chopra has been removed as director of the CFPB.
- The Gaza ceasefire deal may hinge on a meeting between Trump and Netanyahu tomorrow.
- Trump’s hardline rhetoric appears to have drawn concessions from Panama and Venezuela.
- Trump will meet with Japanese Prime Minister Shigeru Ishiba on Friday.
- Poll of the Day: Republicans are optimistic about the economy.
Full article: US DAILY BRIEF
GILTS: Remaining Underpinned
Pullbacks remain shallow in gilts at this stage, with fresh demand for core global FI markets seen in early NY trade, helping underpin UK paper.
- Futures last +67 at 93.44, a fresh session high.
- Fibonacci resistance located beyond session highs at 93.64, with the bullish corrective phase in the contract extending this morning.
- Yields 6.0-8.5bp lower today.
- Gilt bulls have still been unable to close the December 17 opening gap higher in 10-Year yields (4.442%).
- This morning’s bull steepening theme remains intact on the curve.
- Spread to Bunds back from ~211.5bp seen this morning to ~207.5bp last, flat on day.
- Gilts were more hesitant to initially react to the weekend tariff headlines given perceptions surrounding the relative likelihood of U.S. tariffs being levied on both the EU & the UK (higher odds of moves against the EU at present).
