CDS: Brazil Vs Mexico View Playing Out

Despite the heavy beating suffered by Latin America's credit default swap (CDS) markets in Q109, we have noticed a number of attractive relative value plays on offer across the region's 5-Year sovereign CDS spectrum. One call that warrants particular attention is the spread widening of Mexico's 5-Year CDS over Brazil's. We got excited about this trade back in January, when the spread turned decisively positive for the first time. Since then, the spread has broken through long-term trend resistance at 20 basis points (bps) and is currently flying at an all-time high of 72bps.

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