Halister News

(Bloomberg) -- Investors should boost Mexico sovereign credit position to “neutral” from “underweight,” Citi analyst Donato Guarino writes in note, citing “attractive” valuations as credit trades 60bps wider than fair value.

• Mexico may see a 1-notch credit downgrade but probably won’t lose its investment-grade status as country is disciplined fiscally and able to implement adjustments, Guarino writes
• With 1-notch downgrade, bonds would still be 35bps cheap: Citi
• Citi’s base-case scenario calls for Nafta to only be “rebalanced,” and for a border tax adjustment to be implemented
  • If U.S., Mexico leave Nafta, bilateral trade would settle under WTO protocol, whereby Mexico would see 3.5% weighted tariff and U.S. would get 7.1% tariff
• Citi recommends going long Mexico ’45s vs. Colombia ’45s as Mexico bonds “set to outperform over the next few months,” Guarino writes.
• Leveraged investors should sell 5-year Mexico CDS rather than buy Colombia, according to Guarino