Flattener On Hold, But Still Bearish Short End

As monetary policy continues to dominate the macro scene across Latin America, we draw attention to our view on the convergence of yields along Colombia's benchmark local government debt (TES) curve. Since we first outlined the potential for 'bearish flattening' on December 3, as short-end yields rise and long-end yields remain well anchored, we have made 22 basis points (bps) of implied gains (see our online service, 'Bearish Local Debt Flattener in 2011'). While recent developments have reaffirmed our bearish stance towards short-end yields, we now see mounting risks to our more bullish outlook for long-end debt.

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