ItauBBA_FISE_Aug2015

STRATEGY TEAM
Mauricio Oreng
mauricio.oreng@itaubba.com
Ciro Matuo, CNPI
ciro.matuo@itaubba.com
Eduardo Marza
eduardo.marza@itaubba.com
André Merschmann
andre.merschmann@itaubba.com
Please refer to page 32 of this report for important disclosures, analyst certifications and additional information. Itaú BBA does and seeks to do
business with Companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that
could affect the objectivity of this report. Investors should not consider this report as the sole factor in making their investment decision.
Itaú Corretora de Valores S.A. is the securities arm of Itaú Unibanco Group. Itaú BBA is a registered mark used by Itaú Corretora de
Valores S.A.
Minding FX and Spillovers
Fixed Income Strategy Monthly August 14, 2015
Highlights
 Since our last report, Latam assets have underperformed both in FX and rates,
amid a global backdrop of ever-strong USD and still-falling commodity prices.
 In FX, Latam currencies depreciated about 6% in average, more than the average
loss in EM FX (4%) – BRL and COP led the way (down). We calculate that the
decline in commodities account for about half of the monthly depreciation in
Latam FX. More than 30% of the weakness can be associated with widening CDS
spreads (i.e., worsening expected fundamentals). About 20% of the move was
due to the net effect of higher short-term U.S. rates.
 In yields, Latam local curves showed a flattening pattern outside Brazil. Although
this followed a global trend in recent weeks, the sell-off on the front end was much
more intense than abroad, reflecting the impact of FX depreciation on monetary
policy (communications and) expectations. In Brazil, a major bear-steepening
trend took place after the downward revision of the fiscal targets (on July 22). Like
other major Latam markets, FX correlation spiked in Brazil’s local yields.
 However gradual and partly anticipated, the upcoming monetary policy
normalization in the U.S. may further strengthen the USD and pressure higher
U.S. yields. It is quite natural to expect further spillovers into Latam FX and rates
markets. On currencies, we still favor relative trades in Latam (so as to explore
asymmetries in macro fundamentals within the region, so as to reduce risks). On
rates, we are renewing our call for payers, also taking advantage of market effects
from higher FX pass-though concerns expressed by central banks in the region.
 As per our recommendations:
 We recently went short BRL and long MXN. We entered this
position with the BRLMXN cross at 4.709 and our target is 4.470
(stop at 4.790). The current value stands at 4.657 (as of August
13), resulting in a PNL gain of 107bps so far.
 We are adding TIIE payers in Mexico at the 5-year region. The
entry is at 5.51%, and our target is 6.00% (stop: 5.20%).
 In Chile, we are setting payers at the 10-year region of Camara
swaps: entering at 4.60%, targeting 5.20% (stop: 4.30%).
 In Colombian IBR swaps, we are adding a (DV01-neutral)
steepener. We recommend paying the 10-year and receiving the
1-year. Enter at 166bps (target: 250bps; stop: 125bps).
 Amid a spike in yield curve volatility, we recommend neutrality on
Brazilian rates for now and are tactically waiting to re-load payers
or steepeners. Despite possible “tactical” buying (especially after
Moody’s announcement), we still see difficulties ahead,
especially on the fiscal side. If a rally takes place, bringing yields
close to levels seen on July 21st (the eve of the fiscal targets
announcement), that would prompt us to pay long rates.
Highlights
Macro Backdrop
Latam Markets
- Currencies
- Rates

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Our Trading Ideas
Prices updated as of August 13, 2015
Open Recommendations
Trading Views
Note: Our OVERWEIGHT / UNDERWEIGHT recommendations assume management of a Latam portfolio in the context of an EM fund.
Market Trading Idea Started Entry Current Target Stop P&L (bps)
FX Short BRL, Long MXN 10-Aug-15 4.709 4.657 4.470 4.790 107
Mexico TIIE Swaps: Pay the 5-year 14-Aug-15 5.51% - 6.00% 5.20% -
Chile Camara Swaps: Pay the 10-year 14-Aug-15 4.60% - 5.20% 4.30% -
Colombia IBR Swaps: receive 1-year, pay 10-year (DV01-neutral) 14-Aug-15 166 - 250 125 -
Source: Bloomberg
Note: Our new trading ideas will be implemented after the publication of this report. So, the prices used to compute our PNL are indicative for the first day.
Brazil Mexico Chile Colombia
UNDER OVER UNDER UNDER
POSITION: Short BRL/MXN POSITION: Short BRL/MXN
UNDER NEUTRAL NEUTRAL UNDER
NEUTRAL UNDER NEUTRAL OVER
POSITION: IBR 1y10y Steepener
(DV01-neutral)
NEUTRAL UNDER UNDER UNDER
POSITION: TIIE 5y Payer
NEUTRAL UNDER UNDER UNDER
POSITION: Camara 10y Payer
POSITION: IBR 1y10y Steepener
(DV01-neutral)
InterestRates
Medium run
Short run
Intermediate
sector
Back end
FXRates
Short end

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Closed Recommendations
Note: Our PNL calculations are carry-adjusted.
Price Date Price Date
Colombia IBR Swap: pay the 5-year 5.36% 16-Mar-15 5.75% 6-Aug-15 +162 bps
Mexico TIIE Swaps: receive 1-year, pay 10-year (DV01-neutral) 266 19-Jun-15 245 30-Jul-15 -22 bps
FX Short BRL/CLP 206.77 17-Jun-15 195.00 28-Jul-15 +484 bps
Brazil DI Futures: receive Jan16, pay Jan25 (DV01-neutral) 173.89 19-Jun-15 156.00 21-Jul-15 +11 bps
FX Buy MXN; Sell COP 155.65 12-May-15 163.50 19-May-15 +502 bps
Mexico TIIE Swaps: Pay the 10-year 6.19% 19-Jul-14 6.30% 13-May-15 +86 bps
Colombia IBR Swap: pay the 1-year 4.39% 17-Apr-15 4.50% 8-May-15 +11 bps
Chile Camara swap: pay the 10-year 4.39% 3-May-15 4.60% 8-May-15 +181 bps
Colombia IBR Swap: receive the 10-year 5.98% 17-Apr-15 6.10% 5-May-15 -93 bps
Mexico Receive the 1-year and pay the 10-year (DV01-neutral) 213 bps 17-Apr-15 236 bps 30-Apr-15 +17 bps
Brazil Long NTN-B 2018 6.31% 2-Apr-15 6.45% 20-Apr-15 -6 bps
FX Long MXN, Short COP 166.76 15-Apr-15 163.50 17-Apr-15 -196 bps
Brazil Receive DI Jan16 13.68% 19-Mar-15 13.30% 6-Apr-15 +29 bps
Mexico Long Mbono 2021 5.47% 19-Mar-15 5.61% 30-Mar-15 -77 bps
Chile Camara swap: receive the 10-year 4.54% 19-Mar-15 4.45% 26-Mar-15 +74 bps
FX Short EURMXN 16.36 16-Mar-15 16.45 26-Mar-15 -67 bps
Chile Camara swap: pay the 5-year 4.05% 9-Mar-15 4.10% 18-Mar-15 +23 bps
Mexico TIIE swap: pay the 10-year 6.26% 16-Mar-15 6.10% 18-Mar-15 -125 bps
FX Sell COP (Vs. USD) 2,669.98 16-Mar-15 2,630.00 18-Mar-15 -150 bps
FX Buy MXN; Sell COP 168.58 10-Mar-15 169.50 12-Mar-15 +54 bps
FX Sell CLP (Vs. USD) 618.94 27-Feb-15 635.60 12-Mar-15 +258 bps
Mexico TIIE swap: pay the 5-year 5.30% 3-Mar-15 5.60% 11-Mar-15 +136 bps
Colombia IBR swap: pay the 5-year 5.21% 9-Mar-15 5.30% 11-Mar-15 +40 bps
Mexico TIIE swap: pay the 10-year (HEDGE to our long position in MBono 2024) 5.85% 9-Feb-15 6.28% 6-Mar-15 +341 bps
Mexico Long Mbono 2024, Pay 2-year TIIE IRS 140 bps 23-Jan-15 148 bps 6-Mar-15 +318 bps
Chile Camara IRS: pay 5-year, receive 2-year 60 bps 13-Feb-15 65 bps 6-Mar-15 +65 bps
Colombia IBR Swap: pay the 2-year 4.29% 13-Feb-15 4.47% 6-Mar-15 -35 bps
Brazil Receive April 2015 DI Futures 12.20% 23-Dec-14 12.50% 27-Feb-15 +3 bps
Mexico TIIE swap: pay the 5-year 5.17% 9-Oct-14 5.20% 23-Feb-15 +14 bps
Brazil DI Futures: receive Jan17, pay Jan21 56 bps 13-Feb-15 45 bps 23-Feb-15 +32 bps
Brazil Long NTN-B 2018 5.83% 6-Feb-15 6.13% 11-Feb-15 -77 bps
Brazil DI Futures: receive Jan16, pay Jan21 60 bps 6-Feb-15 44 bps 10-Feb-15 +154 bps
Brazil Long NTN-B 2030 5.92% 23-Dec-14 6.05% 5-Feb-15 -97 bps
Colombia Receive COLTES Jun2016 5.03% 23-Dec-14 4.66% 4-Feb-15 +50 bps
FX Buy MXNJPY 8.23 23-Dec-14 7.90 30-Jan-15 -432 bps
Chile Camara swap: receive 2-year 3.05% 27-Nov-14 2.80% 23-Jan-15 +50 bps
FX Sell CLP (Vs. USD) 616.16 3-Dec-14 625.00 22-Jan-15 +105 bps
FX Sell EURMXN 18.02 18-Dec-14 16.80 16-Jan-15 +676 bps
Brazil Receive Jan-15 DI (Futures) 11.59% 3-Dec-14 11.59% 2-Jan-15 +5 bps
Mexico TIIE swap: pay the 10-year 6.00% 9-Oct-14 6.15% 18-Dec-14 +150 bps
FX Sell COP (Vs. USD) 2,286.28 3-Dec-14 2,365.00 9-Dec-14 +336 bps
Brazil Long NTN-F 2025 12.00% 26-Nov-14 12.15% 7-Dec-14 -94 bps
Brazil Long NTN-B 2050 5.77% 26-Nov-14 5.95% 2-Dec-14 -226 bps
FX Long MXN/COP 158.11 19-Nov-14 162.15 2-Dec-14 +255 bps
Brazil Receive DI Jan-16, Pay DI Jan-21 (no immunization) 11 bps 19-Nov-14 -20 bps 21-Nov-14 -268 bps
Chile Camara swap: pay the 5-year 4.13% 9-Oct-14 3.79% 21-Nov-14 -170 bps
FX Sell COP (Vs. USD) 2,026.72 3-Oct-14 2,060.00 17-Oct-14 +164 bps
FX Sell CLP (Vs. USD) 582.30 25-Aug-14 591.00 13-Oct-14 +104 bps
Chile Camara swap: receive 1y, pay 5y 52bps 23-Jul-14 103bps 9-Oct-14 +127 bps
Colombia IBR swap: pay 5y 5.28% 3-Sep-14 5.35% 9-Oct-14 +35 bps
Mexico Mbono: long Dec15, short Dec18 143 bps 23-Jul-14 157 bps 9-Oct-14 +58 bps
Mexico TIIE swap: receive 2y, pay 10y 221 bps 3-Sep-14 219 bps 9-Oct-14 +130 bps
Brazil Long NTN-B 2050, financed in Euribor (i.e., short EUR/BRL), with no FX hedge 5.68% 26-Aug-14 6.20% 29-Sep-14 -1,120 bps
Brazil Short breakeven inflation proxy: buy NTN-F 2023 and sell NTN-B 2022 (DV1-neutral) 586 bps 26-Aug-14 642 bps 29-Sep-14 -314 bps
Brazil Receive DI Jan-17 11.60% 11-Aug-14 11.19% 29-Aug-14 +91 bps
Colombia Pay IBR 2y swap 4.77% 23-Jul-14 4.68% 19-Aug-14 -16 bps
Brazil Long NTN-F 2017 (foreign investor, unhedged FX - includes BRL returns) 11.74% 11-Aug-14 11.53% 15-Aug-14 +162 bps
Source: Bloomberg
Trading Idea P&L (bps)
Entry Closing

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Macro Backdrop
For a detailed analysis, refer to our Latam Macro Monthly
GLOBAL ECONOMY: Moderate Growth and Weak Commodity Prices
• The U.S. economy recovered in 2Q15 and is creating jobs at a good pace, but wage inflation remains low. We see the Fed
raising interest rates later this year.
• The crisis in Greece didn’t change the outlook for a modest recovery in the euro area. However, the current pace is slightly
lower than we anticipated. We revised GDP growth estimates to 1.4% from 1.6% in 2015, but we maintain the 1.9% for 2016.
• In China, the worst of the needed correction in the stock market seems to be over, but we believe there is room for
disappointment with the Chinese economy in 2H15 and maintain our below-consensus GDP forecast for 2015 (6.7%).
• Commodity prices plummeted in July. We see most of the fall as permanent.
• Emerging markets, including Latin American economies, will remain under pressure because of the less favorable external
environment and weak domestic conditions.
Forecasts: World Economy
Source: Central Banks, IMF, Haver and Itaú.
* The DXY is a leading benchmark for the international value of the U.S. dollar, measuring its performance against a basket of currencies that includes the euro, yen,
pound, Canadian dollar, Swiss franc and Swedish krona.
COMMODITIES: Still Falling
• We revised our forecast for Brent crude downward, to USD 60/bbl from USD 70/bbl by the end of next year, because we
incorporated efficiency gains in non-conventional output in the U.S., which will lead to lower equilibrium prices.
• We also lowered our price forecasts for metals (the oil pass-through and weaker demand from China), sugar and coffee (on
a weaker BRL).
GDP Growth
World GDP growth - % 0.0 5.4 4.1 3.4 3.3 3.3 3.3 3.6
USA - % -2.8 2.5 1.6 2.2 1.5 2.4 2.4 2.4
Euro Area - % -4.4 2.0 1.5 -0.6 -0.4 0.9 1.4 1.9
Japan - % -5.5 4.7 -0.4 1.7 1.6 0.0 0.8 1.6
China - % 9.0 10.4 9.4 7.9 7.8 7.4 6.7 6.6
Interest rates and currencies
Fed Funds - % 0.1 0.2 0.1 0.2 0.1 0.1 0.4 1.4
USD/EUR - eop 1.43 1.34 1.30 1.32 1.37 1.21 1.10 1.07
YEN/USD - eop 92.1 81.5 77.6 86.3 105.4 119.8 125.0 130.0
DXY Index* - eop 77.9 79.0 80.2 79.8 80.0 90.3 98.0 100.6
2016F2015F2009 2010 2011 2012 2013 2014

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Forecasts: Commodities
Source: Bloomberg Itaú.
* The Itaú Commodity Index is a proprietary index composed of commodity prices, measured in U.S. dollars and traded on international exchanges, which are relevant to
global production. Its sub-indexes are Metals, Energy and Agriculture.
** The ICI-Inflation Index is a proprietary index composed of commodity prices, measured in U.S. dollars and traded on international exchanges, which are relevant to
inflation in Brazil (IPCA). Its sub-indexes are Food, Industrials and Energy.
BRAZIL: More Challenges, Lower Targets
• The scenario has proved more complex, further hindering the fiscal adjustment. The government reduced its fiscal targets.
We forecast a primary result of 0.0% of GDP this year (target: 0.15%), 0.2% for 2016 (target: 0.7%), 0.6% for 2017 (target:
1.3%) and 0.8% for 2018 (target: 2.0%). In the absence of additional cyclical and structural measures, the gross public debt
could reach 70% of GDP. The country may lose its investment grade status.
• We reduced our GDP growth forecast for 2015 and 2016, indicating a longer recession. We now expect GDP to contract
2.3% in 2015 (-2.2% previously) and 1.0% in 2016 (-0.2% previously). We maintained our unemployment rate forecast at
8.0% by the end of this year but expect an increase to 9.3% in 2016 (previously, 9.0%).
• This scenario demand a deeper and faster correction of the current account deficit. We increased our exchange rate
forecast to 3.55 reais per dollar by the end of 2015 (prior: 3.20) and 3.90 reais per dollar by the end of 2016 (prior: 3.50).
• The currency depreciation puts greater pressure on prices. We raised our IPCA inflation forecast to 9.3% from 9.1% for
2015 and to 5.8% from 5.3% for 2016.
• The Brazilian Central Bank signaled the end of the tightening cycle in July, and the intention to maintain the Selic rate at
current levels for an extended period. The riskier economic and political environment and its impact on the exchange rate limit
room for interest rate cuts next year. We expect the central bank to keep the Selic rate at 14.25% for the remainder of 2015
and start reducing it only by the third quarter of 2016 (we previously expected a cut in the second quarter), bringing the rate to
12.25% by the end of the year (previously, 11.25%).
MEXICO: Risks for the Energy Reform
• The results of the first oil tender missed expectations. In addition to the uncertain outlook for oil prices, contractual terms
could also be behind the disappointment. In response, the government is already improving the terms for the following
tenders to attract more interest from private firms, but the recent further decline in oil prices increases the risks for the coming
auctions.
• Mexico’s economy remains weak. Besides the falling oil output, manufacturing exports, which contracted for the second
consecutive quarter in 2Q15, were a drag on the economy. On the positive side, indicators linked to internal demand are
improving. We continue to expect growth at 2.4% this year, as we believe that the recovery of the U.S. economy will lead to
higher growth in Mexico during the second half of this year. In 2016, the U.S. economy will likely continue to help, but we
reduced our growth estimate to 3.0% (from 3.3%) because the investments associated with the energy reform will probably
come more slowly than we previously thought.
Commodities
yoy - % 35.4 21.9 -5.2 0.8 -5.2 -2.9 -7.2 4.1
avg growth - % -14.6 25.1 19.5 -9.5 -3.1 1.1 -12.6 1.5
yoy - % 36.8 33.3 -6.5 3.5 -6.1 -27.5 -14.1 5.0
avg growth - % -29.5 32.4 24.9 -7.9 -3.8 -10.2 -30.4 0.1
a/a - % 22.2 41.5 -14.8 13.2 -22.4 -8.7 -13.0 4.2
avg growth - % -20.3 15.7 35.1 -5.1 -11.5 -13.6 -16.0 -0.7
yoy - % 47.3 11.5 10.1 -0.7 5.4 -38.9 -11.4 7.5
avg growth - % -39.2 22.0 25.6 -2.4 0.9 -5.2 -40.8 3.4
yoy - % 40.9 63.4 -18.2 -1.0 -3.2 -27.0 -19.9 2.0
avg growth - % -18.9 78.5 13.7 -19.4 -1.2 -14.9 -27.8 -4.3
yoy - % 37.2 32.5 -6.8 5.0 -11.3 -16.9 -14.3 4.1
avg growth - % -23.2 24.8 28.1 -5.7 -7.2 -8.0 -23.6 -1.0
2016F2011
Energy
2012 2013 2014 2015F
CRB Index
Metals
Itaú Commodity Index (ICI)*
Agricultural
2009 2010
ICI - Inflation **

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• Headline inflation stood at 2.74% in July – the lowest result on record – as core inflation remained well below the center of
the target. We expect annual inflation to end this year and the next at 3.0%.
• The Mexican peso depreciated further in July, but continues to outperform the region’s commodity-related floating
currencies. Despite the outperformance, the Foreign Exchange Commission (made up of members of the central bank and of
the ministry of finance) announced stronger intervention on July 30, together with the policy rate decision. We now see the
currency ending this year and the next at 16.0 pesos to the dollar (from 15.5 in our previous scenario). Lower oil prices and
lower-than-expected FDI inflows related to the energy reform are behind our revision.
• As was widely expected, the policy rate was left unchanged in July. However, a day after the decision, Central Bank
Governor Agustín Carstens stated that the central bank has full flexibility to modify its monetary policy if volatility increases
due to “actions by the Fed or for any other reason.” We continue to expect rate hikes only in 1Q16 (after the Fed’s liftoff,
expected by us in December), due to the weak economy, low inflation, and stable inflation expectations.
CHILE: Lower Copper Prices Weigh on the Economy
• We continue to expect GDP growth of 2.2% this year, but have reduced our 2016 forecast to 3.0% (from 3.2%) due to the
deteriorating copper price outlook.
• A worsening external environment for emerging market currencies (including lower commodity prices) led to continued
depreciation of the Chilean peso in July. We now see the exchange-rate at 665 pesos to the dollar by year-end 2015 (from
645 previously) and at 675 in 2016 (from 650).
• Despite the drop in copper prices, we now estimate a current account deficit of 0.8% of GDP for 2015 (1.1% previously),
compared with the 1.2% deficit registered in 2014, and at 1.5% in 2016 (from 1.8% previously). The exchange rate
depreciation and lower oil prices are behind the revision.
• In light of the weaker Chilean peso and the supply-shocks that have affected food prices, we now anticipate inflation of 4.0%
by year-end (3.7% previously), decelerating to 3.0% in 2016.
• The minutes of the Central Bank’s July monetary policy meeting revealed increased concerns about inflation. However, we
continue to expect no rate movements this year or the next.
• Amid a challenging scenario for the Chilean economy, the government has been trying to implement measures to boost
confidence.
COLOMBIA: Oil’s Casualty
• We have lowered our 2015 GDP growth forecast to 2.8% (from 3.2%) and to 3.0% for 2016 (3.5% previously), as oil prices
fell further.
• The Colombian peso has been one of the hardest-hit currencies in July due to the sharp drop in oil prices. The wide current
account deficit of the country, financed by portfolio flows, also played a role. We now expect the exchange rate to end this
year at 2,850 pesos per dollar (2,600 previously), and 2,950 per dollar by year-end 2016 (from 2,650).
• Given our new forecasts for the exchange rate, we now expect inflation to end the year at 4.0% (from 3.7% in our previous
scenario). In 2016, we still see CPI decelerating to 3.0%, as the negative output gap and lower exchange-rate depreciation
reduce the pressure on consumer prices.
• Following our lower oil price forecasts, the improvement in external accounts will be curbed. We now expect the current
account deficit to reach 6.4% of GDP (6.0% previously) and 5.5% for 2016 (from 5.0%).
• A split central bank board held the policy rate at 4.5% in July, and the central bank sees risks for inflation expectations
stemming from the weaker peso. We continue to see no rate moves on our forecast horizon, but the risk of rate hikes is
greater than that of a cut.
• Adjusting for lower oil-related income, the 2016 budget proposal seeks to increase total expenditure by 2.5% from this year
(in nominal terms), while investment is set to decline by 10.7%.

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Latam Markets
(Prices updated as of August 7—10, 2015)
GLOBAL DRIVERS
In the 30 days up to the first week of August, global financial markets saw further USD appreciation and a continued
commodity sell-off. Recent changes introduced in Chinese FX policy added a bit more volatility in very recent days.
On the FX front, the vast majority of major currencies weakened vis-à-vis the USD since our last report. Both monthly
and annual returns were deep in the red. Adjusting yearly losses for the carry does not change the picture, since even
the highest yielding currencies have slumped in the past twelve months. In particular, the RUB and the BRL remain the
worst performers, despite the high level of domestic interest rates. EM FX and commodity currencies were additionally
shaken by the CNY depreciation after the PBoC announcement of a new FX policy on August 11.
2014
Itaú Survey Itaú Survey
Real GDP growth - % 0.1 -2.3 -2.0 -1.0 0.0
Unemployment Rate - year avg 4.9 6.7 6.5 8.7 7.4
CPI - % 6.4 9.3 9.3 5.8 5.4
Monetary Policy Rate - eop - % 11.75 14.25 14.25 12.25 12.00
BRL / USD - eop 2.66 3.55 3.40 3.50 3.50
2014
Real GDP growth - % 2.1 2.4 2.5 3.0 3.2
CPI - % 4.1 3.0 3 3.0 3.4
MXN / USD - eop 14.72 16.00 15.50 16.00 15.20
2014
Real GDP growth - % 1.9 2.2 2.4 3.0 3.2
CPI - % 4.6 4.0 3.8 3.0 3.1
CLP / USD - eop 606 665 642 675 646
2014
Real GDP growth - % 4.6 2.8 3.2 3.0 3.1
CPI - % 3.7 4.0 3.9 3.0 3.2
COP / USD - eop 2,377 2,850 2,683 2,950 2,689
Source: Itaú, Latin Consensus Forecasts, Banamex, Banco Central de Chile, Banco Central de Colombia and Bloomberg
2016F
2016F
MEXICO
COLOMBIA
CHILE
MACROECONOMIC FORECASTS
2015F
2015F
2015F
BRAZIL
2016F
2015F 2016F

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Commodity prices went down sharply since mid-July, accompanying the USD strengthening, reflecting supply shocks
and following prospects of weaker demand (especially from China). The composite CRB index plunged 9% m/m during
this period, led by agricultural and oil-related commodities.
Among the more relevant raw materials for Latam economies, iron ore was an outperformer, gaining 7% m/m. In
contrast, copper fell markedly (-8%), driven by an unfavorable Chinese outlook as well as more evidence of lower
transportation and processing costs. Oil prices also plummeted in the period (Brent -18%; WTI -16%), influenced by
efficiency gains in non-conventional output in the U.S. and climbing production from OPEC countries.
As the commodity rout dents macro fundamentals in a number of EMs, it is no wonder that credit spreads have
increased for emerging economies. In average, EM CDS rates
1
rose 11bps to 139bps, with the sell-off affecting both
commodity producers and importers. Latam CDS increased to 158bps (from 140bps); EM Asian spreads widened by
16bps to 127bps. In CEEMEA (ex-Ukraine), average CDS rates inched up by 2bps to 135bps.
Within Latam, CDS increased the most in Brazil, reaching 322bps (from 257bps a month before), the highest level
since 2009. At idiosyncratic level, the spike in Brazilian risk premium follows the increased political concerns affecting
the expected execution of the fiscal adjustment process. Colombian spreads also headed north to 196bps (from
172bps 30 days ago), probably reflecting the slide in oil prices and the expected impact on external sector
fundamentals. Mexican and Chilean risk spreads moved higher as well during this period, albeit less intensely (Mexico:
+8bps to 137bps; Chile: +14bps to 170bps).
1
We calculate average CDS rates using a weighted-average of PPP-adjusted GDP data (USD value). Updated as of August 7, 2015.
-50 -40 -30 -20 -10 0 10
RUB
COP
BRL
CHF
CLP
TRY
MYR
SEK
KRW
MXN
CAD
NOK
SGD
TWD
PLN
IDR
NZD
ZAR
JPY
EUR
HUF
CZK
INR
AUD
CNY
GBP
Absolute FX Returns
Source: Bloomberg, Itaú
1-month
12-month
% (+) appreciation
(-) depreciation
-40 -30 -20 -10 0 10
RUB
COP
BRL
NOK
SEK
NZD
JPY
AUD
EUR
PLN
HUF
MYR
MXN
CZK
CAD
TRY
CLP
KRW
ZAR
SGD
CHF
IDR
GBP
TWD
CNY
INR
Carry-Adjusted FX Returns
1-month
12-month
% (+) appreciation
(-) depreciation
-9%
-14%
-11%
-32%
-18%
-29%
-21%
-54%
-8%
-21%
-8%
-27%
7%
-11%
-18%
-46%
-6%
3%
0%
-11%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
1M 3M 6M 12M
Commodity Returns
CRB Futures
Brent Oil
Copper
Iron Ore
Soybean
as of Ago 10, 2015

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HOME
Global rates flattened across the board over the last month. Especially in major DM curves, with a move of similar
pattern, but different magnitude, also occurring in EMs. In both EMs and DMs, the highlight is the upward pressure on
the front end, as 2-year rates jumped about 18—20bps in average.
In developed markets, the front end of U.S. Treasuries curve widened by 18bps, as the market prices in higher odds for
a September liftoff by the Fed. UK rates also rose a great deal in the 2-year area (+10bps) as the BoE is also seen on
track to hike rate in the 1Q16. In Eurozone and Japan, where central banks have been adding (quantitative) stimulus,
yields stood relatively flat. In emerging markets, the sharpest gain in shorter-dated rates was in Latam (+57bps). Albeit
less intensely, yields also rose in Asia and CEEMEA (+12bps and +15bps, respectively).
Long DM rates settled down a bit since mid-July, rallying by 5bps in average. In the U.S., 10-year Treasuries edged
down by 3bps during this period. UK rates dropped the most (-8bps), followed by the Eurozone and other DMs (-7bps
for both groups). Long EM rates moved in the other direction, widening 12bps in average. The movement was due to a
pronounced sell-off on the back of Latam curves (+66bps), contrasting with a slight decline on the same sector for
CEEMEA (-4bps).
123 128
246
97
112
126
149
112
127128
140
257
92
129
138
172
111
133139
158
322
106
137
150
196
127
135
50
100
150
200
250
300
350
Emerging Markets High-grade Latam Brazil Chile Mexico Peru Colombia EM Asia CEEMEA (ex-
Ukraine)
Credit Default Swaps (5-year)
As of August 10, 2015
1 month before
6 months before
basis-points
-4
3
-5 -1
18
-46 -44 -47
81
-166
-18
8
18
1
-1
10
1
20
12
57
15 12
-200
-150
-100
-50
0
50
100
DMs USA Eurozone Japan UK Other DMs EM's Asian EM's Latam CEEMEA Global
(Sample)
Change in Nominal Yields (2-year)
YTD
Last month
basis-points

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HOME
Going forward, we still believe the Fed heads for a liftoff in December, although the odds for a September move are
relevant (as suggest the nearly 50% chance priced in Fed Funds futures). Although the U.S. authority will maximize
efforts to reduce the potential damage on financial conditions, the rate normalization process, however gradual (and
partly anticipated by the markets), will contribute to reduce the “dot gap” ahead.
As far as yields go, the historically high correlation between tenors and the simulation of (even gradual) paths for the
Fed Funds in U.S. Treasuries indicate that a flattening pattern following the liftoff is unlikely to leave the back end fully
unscathed. Thus, long global rates will probably continue to move higher, with (expected) inflation trends determining
the speed of the adjustment, which tend to be an orderly one. Our macro team projects yearend U.S. Treasuries yields
at 1.10% for the 2-year (today: 0.71%), 2.10% for the 5-year (today: 1.57%), and 2.70% for the 10-year (today: 2.19%).
The economic activity and interest rate gaps will also continue to pull the USD higher ahead, especially against EM
currencies. While the latter face additional risk of further unexpected adjustment in Chinese FX
2
, we believe this will not
be a key theme. Our scenario also projects stability in commodity prices until yearend.
In Latam, fixed income markets will remain vulnerable to the influences of U.S. monetary policy expectations (shaping
both global yields and the USD trends), as well as idiosyncratic commodity movements. But Chinese developments will
continue to take on added relevance, both on FX and activity fronts.
CURRENCIES
Latam FX (General View)
The commodity rout has taken a big toll on Latam FX
3
since mid-July (up to August 10). The currencies under our
coverage (BRL, MXN, CLP, COP) and the PEN tumbled 6% in average, in about a month’s time. The sell-off was in
tandem with a selected group of commodity currencies (-7%), albeit much more pronounced than the 4% decline in EM
FX and the 1% slide in G10 FX. The underperformance in Latam FX is confirmed by the fact that BRL, COP and CLP
stood among the bottom-five in a monthly comparison with 26 major currencies.
The FX changes seen from mid-July to mid-August were just a sample of a trend that has been in place for a while. For
the last twelve months, for instance, Latam currencies have weakened about 38% in average, a little less than
commodity currencies (-45%). However, in the same period, EM FX fell 25%, and G10 FX lost 19%. The re-pricing of
the USD (amid expectations of Fed policy normalization) and the plunge in material costs (following signs of supply
gains and slowing Chinese demand) continue to be main drivers for the bear-market in Latam FX markets.
2
Further CNY devaluation could also pressure down inflation expectations, delay a bit more the Fed liftoff, and force global yields down.
3
Our indexes of Latam FX, commodity FX, and EM FX are weighted by PPP-adjusted GDP. In case of Latam, we include the most liquid currencies in the
region, such as the BRL, MXN, CLP, COP and PEN.
6
-2
25
6
11
-16
16
-7
90
27
4
-5 -3
-7
-1
-8 -7
12
1
66
-4 -3
-40
-20
0
20
40
60
80
100
DMs USA Eurozone Japan UK Other DMs EM's Asian EM's Latam CEEMEA Global
(Sample)
Change in Nominal Yields (10-year)
YTD
Last month
basis-points

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HOME
Pair-wise, we continue to see a large asymmetry in the region. The BRL and COP were once again the worst-
performers in our Latam sample, as both fell 9% in about a month. The MXN and CLP – the most resilient currencies in
our sample – underwent milder monthly losses (3—4%), moving relatively in line with EMs.
For broader horizons, the comparison vis-à-vis EMs tells two groups apart. On one side, the BRL and COP which have
lost around 50—55% over the last twelve months, more than twice as much as EM FX. On other side, the MXN and
CLP post loss around 20%, beating (yet by a slight margin) the average performance of EM currencies.
These figures confirm some facts suggested by our Latam FX models. The elasticity estimates from our short-term FX
valuation (or “fair-value”
4
) models put the BRL and the COP as the most vulnerable currencies in our sample, reflecting
the external sector weaknesses facing Brazil and Colombia (namely, the high current account deficits). Interestingly,
the similar performances recorded by the BRL and COP over a year’s time suggest that idiosyncratic macro
weaknesses in Brazil are probably cushioned by the elevated carry.
Our FX models also help us identify the main factors behind recent trends, allowing us to decompose respective
contributions. In our calculation, about half (46%) of the monthly depreciation in the composite Latam FX index can be
associated with the decline in commodity prices. Another 34% of the weakness can be associated with the widening
CDS spreads; the remainder 20% is due to a narrowing interest rate differential (i.e., net effect of rising short-term U.S.
rates).
4
Our “short-term fair-value” models can also be understood as an extended-UIP (uncovered interest parity), whereby we model FX trends using as regressors
U.S. and local (market or benchmark) rates, country risk premium (CDS spreads as proxy), commodity prices (oil, copper, CRB, depending on the currency),
and the USD value against the G10 (sort of a “beta” component). The final set of explanatory variables and the significance of the slopes will naturally change
accordingly with the currency being modeled. To estimate the OLS regressions, we used a monthly sample starting in 2012, so as to capture the recent
dynamics in Latam FX. One shortcoming in our methodology is that our models do not account for (long-term) current account balance conditions, yet the
external accounts outlook may be indirectly embedded into CDS spreads (one of the explanatory variables). These models may provide a good approximation
for the short-term trends in currencies, since those tend to behave more as an asset price in the very short term. In the long run, however, balance of payment
conditions tend to prevail as a driver for FX dynamics, so that our models are expected to lose accuracy for more distant time-horizons. In other words, given
the financial nature of our FX models, the longer the horizon, the less accurate the projections.
-6%
-11%
-15%
-38%
-7%
-16%
-6%
-45%
-4%
-8%
-6%
-25%
-1%
-3% -2%
-19%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1M 3M 6M 12M
FX Aggregates - Spot Returns
Latam (G5*)
Commodity FX
Emerging Markets
G10 (DXY Index)
* Includes: BRL, MXN, CLP, COP and PEN
as of Aug 10, 2015
-9%
-14%
-20%
-51%
-3%
-5%
-7%
-22%
-4%
-12%
-7%
-17%
-9%
-22%
-20%
-54%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1M 3M 6M 12M
Latam FX - Spot Retuns
BRL
MXN
CLP
COP
as of Aug 10, 2015
0.29
0.08
0.16
0.12
-0.28
-
-0.15
-0.02
0.18
0.07 0.08
0.03
-0.43
-0.14
-0.47
-0.17
-0.54
-0.34
-0.14
0.06
0.26
0.46
USDBRL USDMXN USDCOP USDCLP
FX Rate Sensitivity
Source: Bloomberg Itaú
U.S. Treasuries (2y)
Local Rates (Base or 2y)
CDS Spreads (5y)
Commodity Prices + G10 FX
models' elasticities

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HOME
Our calculations show Andean currencies (CLP, COP) weakening more than fundamentals over a month. As an
upshot, our fair value models now suggest considerable cheapness for both currencies, with CLP and COP standing
about 9-10% below their fair values, as of August 10. Our models also indicate some cheapness for the BRL and MXN,
although at a much lesser extent: these currencies were running about 2% below their respective fair values.
-15%
-13%
-10%
-8%
-5%
-3%
0%
3%
5%
BRL MXN COP CLP Latam
FX Drivers : Contributions to Monthly Spot Returns
Commodity Prices
Interest-rate differential
CDS Spreads
Residuals
(+) appreciation / (-) depreciation
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15
Fair Value for Latam FX
BRL
MXN
COP
CLP
% deviation from short term '(financial) fair value", as of Aug10, 2015
(+) currency is rich
(-) currency is cheap
0.8%
1.9%
9.2% 9.2%
-0.6%
1.7%
8.3%
9.0%
-3.6%
1.2%
6.7%
8.9%
-5%
0%
5%
10%
15%
BRL MXN COP CLP
Estimates for Short-Term Returns on
Latam FX
% (+) appreciation / (-) depreciation
Carry-Adjusted Return Until August
Carry-Adjusted Return Until September
Carry-Adjusted Return Until December

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For the time being, we find it hard to accurately interpret the results from our fair value FX models: either the models
are actually pointing to some excesses in the recent sell-off, or they are providing misleading signals due to structural
breaks in key parameters. For now, we tend to pick the second alternative, especially when it comes to positioning.
We also use the FX models to run projections for short-term returns (adjusted for the carry), which allows us to track
opportunities for positioning based on our macro scenario. Our forecasts for Andean currencies are naturally
contaminated by the supposed mismatch in current pricing vis-à-vis fair values. Yet our numbers suggest downside
ahead for the BRL, where the model’s output seems to be holding (an opportunity to go short?).
In the subsections below, we analyze Latam currency trends separately, breaking down contributions from recent
drivers and describing the short-term outlook (and risks) for each pair.
BRL (Brazilian Real)
 Recent drivers: We estimate that the slump in commodity prices accounted for a little more than 40% of the
BRL depreciation (totaling 9%) over a month. The interest-rate differential accounted for 30% of the move, as a
new (probably last) hike in the Selic rate did not offset the effect from further increases in short-term rates in the
U.S.. The 65-bp jump in Brazilian CDS spreads was the most important driver, accounting for 44% of the
monthly FX depreciation. This reveals the impact of idiosyncratic events, such as the downward revision of the
fiscal targets, S&P’s negative outlook on Brazilian rating (i.e., currently at BBB-, the lowest high-grade notch),
the political difficulties (especially to pass budget-enhancing measures), as well as the deepening (and
probably long) recession. We estimate that the BRL fundamentals contributed for more weakness than actually
seen, judging from the significant residual shown in our decomposition of month drivers. This residual
encompasses the effect of variables not included in our models, so that BCB interventions may be a good
candidate. If so, the recent addition of BRL support via an increase in the rollover of FX swaps maturing in
September could have kept the BRL about 1% stronger than otherwise.
 Projected returns: Although our macro scenario assumes stable commodity prices until yearend, we look for
an increase in short-term (i.e., 2-year) rates in the U.S., which is poised to dent the BRL, considering its large
sensitivity to global financial conditions. Our calculations indicate a potentially negative carry-adjusted return (-
3.6%) until December for long BRL positions, which is the lowest estimate among our Latam coverage.
 Balance of risks: Despite our negative return estimates, the odds seem a little less tilted to the downside for
the BRL, as compared to a few weeks ago. The steep depreciation of late naturally improved some technical
factors, and also pushed the valuation closer to equilibrium (wherever that is). Additionally, some idiosyncratic
risks seem to be subsiding for the short term
5
, reducing the chances of a disorderly spike. In this context, the
high cost of being short BRL (i.e., due to the carry) helps prevent from a massive market positioning in bearish
5
One example of the improved news flow is the recent announcement by Moody’s: although the rating agency downgraded Brazil sovereign rating by one
notch to the lowest investment-grade level, it kept a stable outlook. The neutral bias reduces the chances of moving to high-yield camp by two rating agencies
in the short term, also diminishing the chances for a currency overshooting in the near term.
CRB Commodity Price Index - pts. 203 204 205
Oil prices (WTI) - USD pb 45 46 47
Copper (HGA) - USd/lb 240 242 244
CDS Brazil (5-year) - bps 321 321 325
Selic Rate - % p.a. 14.25 14.25 14.25
CDS Mexico (5-year) - bps 131 131 131
Banxico Reference Rate - % p.a. 3.00 3.00 3.00
CDS Colombia (5-year) - bps 190 190 190
IBR Swap (2-year) - % p.a. 5.05 5.05 5.05
CDS Chile (5-year) - bps 104 104 104
Camara Swap (2-year) - % p.a. 3.93 3.97 4.05
DXY (US Dollar) Index - pts. 97 98 98
US Treasury (2-year) - % p.a. 0.85 0.93 1.10
Source: Bloomberg, Itau
ASSUMPTIONS (monthly averages) Sep-15 Oct-15 Dec-15

Itaú BBA
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HOME
BRL bets. However, domestic challenges and weaknesses are still there (political concerns, fiscal difficulties,
deepening recession), which appeals for caution. In terms of FX interventions, despite the robust level of
international reserves, intervention costs are high both in terms of budgetary effects and fundamentals’
maintenance. Selling USD on spot market is probably a last-resort measure, to be used just in case of
hypothetical liquidity difficulties (definitely not the case now). Lastly, and most importantly, the high BRL
sensitivity to U.S. rates and commodities are important factors to bear in mind when it comes to positioning.
MXN (Mexican Peso)
 Recent drivers: About 90% of the (3%) MXN depreciation recorded over a month stemmed from the decline in
oil price, according to our numbers. The remainder 10% stemmed from the 8-bp increase in CDS spread (a
proxy for country risk). The currency outperformed many of its oil-producing peers (e.g., the COP, RUB).
 Projected returns: Our fair-value models indicate room for appreciation going forward. The model estimates
positive carry-adjusted returns of 1---2% for the coming months. But we continue to see no point in taking
outright bets against the USD strength, especially given such statistically low levels of projected returns.
 Balance of risks: On one hand, persisting downside risks for oil costs and the possibility of further activity
disappointment (potentially affecting the timing for Banxico rate hikes) are relevant factors that tilt the odds for
the MXN to the downside. On other hand, the possibility of further elevation in FX interventions (as signaled by
the authority a few weeks ago) can make the MXN weakening smoother than some peer-currencies.
Additionally, given the relatively lower “beta” that we estimate for the MXN, we continue to look for opportunities
to use the MXN as the buying-leg in long/short plays within Latam (possibly against the COP or BRL).
COP (Colombian Peso)
 Recent drivers: Our models indicate that about 30% of the steep (i.e, 9%) COP depreciation registered over a
month is due to the oil slump. The widening in Colombian CDS (about 25bps) and the narrowing interest rate
differential (owing to higher U.S. rates on the front end) accounted each for about 10% of the COP’s monthly
change. Oddly, nearly half of the Colombian peso weakness followed factors not considered in our models
(that’s what we called “residual”). We judgmentally take this econometric result with a grain of salt.
 Projected returns: Our fair-value models suggest largely positive (carry-adjusted) returns for the COP in
coming months. That follows the immediate “cheapness” estimate (i.e., actual value vs. fair value) of 9%.
Potential returns up to December are calculated at just below 7%.
 Balance of risks: As mentioned above, it is still unclear whether the large residual in the monthly
decomposition and the big gap between fair-value and current COP levels means an exaggerated market move
or just a structural break in our models. The extreme weakness shown by the COP recently and Colombia’s
balance of payment vulnerabilities make us pick the second explanation, at least when it comes to positioning.
Thus, we continue to override our COP model estimates, given our judgmental assessment of risks, including:
(1) the fact that the positive return estimate depends on the assumption of slightly higher oil price until yearend,
which is still a point of doubt; (2) Colombia’s rather large current account deficit make the COP largely sensitive
to swings in global financial conditions; (3) from a policy standpoint, the weak COP is seen by government
officials as a welcome mechanism for the adjustment of external imbalances and the generation of better
competitiveness – that rules out the possibility of FX interventions to support the currency
6
. We continue to
recommend underweight on the COP, which we see as a candidate for the selling leg in long-short calls within
Latam (having CLP or MXN on the opposite leg).
CLP (Chilean Peso)
 Recent drivers: Altogether, the decline in copper price and the 14-bp increase in Chilean CDS accounted for a
quarter of the (4%) CLP drop during the recent period. The interest-rate differential had nearly no impact, as
the increase in short term U.S. rates was offset by an increase in local yields. Our calculations associate nearly
three quarters of the recent CLP depreciation with “residuals” (i.e., variables not accounted for in our models).
6
Yet some Banrep officials are starting to worry about FX pass-through to inflation.

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Just as the COP, the main doubt is whether this means an exaggerated move or just structural breaks.
 Recent drivers: Our fair-value models point to a CLP “cheapness” of about 9%. Our estimates also signal
potential returns of same magnitude up to December. We also take these estimates with (high) caution.
 Balance of risks: Despite the relative resilience (and outperformance) of the CLP over a year’s time, following
Chile’s completion of the external sector adjustment, we disregard the model’s results in terms of positioning.
Our estimates rely on the assumption of stabilizing commodity prices (including copper). The downside risks
from China (both in terms of FX rate and economic activity) pose additional risks for material costs.
Additionally, the possibility of more disappointment with Chilean activity could translate into a softer BCCh
guidance, pressuring market rates (and therefore FX) down. So, Chile’s stronger relative external position in
Latam would only make us use the CLP as a “buy” in long-short trades. We take no bets against the USD for
now. We are neutral on the CLP.
Positioning
We recently opened a new recommendation to go short BRL and long MXN, despite an apparently
unattractive entry point (following a 7.5% drop in the pair since late July).
The idea was to position for the possibility of an overshooting in the BRL, amid increased political tensions and
greater fiscal concerns in Brazil. Additionally we sought to explore the different positions in the balance of
payments (i.e., higher current account deficit in Brazil), which makes the BRL more vulnerable an upcoming
scenario of Fed liftoff. The asymmetries in both monetary and FX policy (with Banxico more inclined to hike rate
and add FX support) is another factor.
The main risks for this position are (1) a tighter tone in BCB speeches and suggested flight plans; (2) ups and
downs in the (rather volatile) political news flow in Brazil, eventually leading to some (temporary) BRL strength; (2)
weaker-than-expected U.S. economy or surprisingly low inflation prompting the Fed to delay the liftoff, helping more
intensely the BRL than the MXN.
We entered this position with the BRLMXN cross at 4.709 and our target is 4.470 (stop at 4.790). The
current value stands at 4.657 (as of August 13), resulting in a PNL gain of 107bps so far.



4.50
4.80
5.10
5.40
5.70
6.00
Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15
Relative Performance: BRL Vs. MXN
Cross: BRLMXN

Itaú BBA
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HOME
RATES
Brazil
Over a month (up to August 10), Brazilian local rates (re-) steepened in a bearish way. In nominals, yields widened
24—36bps on the front end, 60—120bps on the belly, and about 130bps on the back end. The longest-duration
nominal rate bond, the NTN-F 2025, soared 134bps to 13.80%. In linkers, the sell-off was similar, with the front-end
widening 29—60bps and the remainder of the curve jumping 76—85bps. The benchmark for long real rates, the NTN-B
2050, escalated by 77bps to 6.94%. These levels are comparable to the peak of the “taper-tantrum” sell-off in 1Q14.
Longer-dated Brazilian rates not only sold-off, but also became much more volatile. The 50-day standard deviation for
some benchmark NTN-B maturities (e.g., 2022s and 2050s) reached the highest level since late 2013; for some
nominal rate maturities (e.g., 2021s and 2025s), this volatility proxy reached the highest levels in three months.
Days before this huge sell-off, the market was starting to turn bullish, following BCB indications that the tightening cycle
was nearing completion (signs confirmed later on by the Copom policy statement and minutes). Until July 22
nd
, market
participants were seeking to anticipate an easing cycle on the pipeline for 2016—2017.
The game has changed for Brazilian rates after the announcement of the new fiscal targets on July 22
nd
(see our Macro
Vision report “Public debt may reach 70% of GDP by the end of 2017” - July 23, 2015). Amid increased cyclical and
political difficulties, the downward revision of the primary surplus target for 2016 (to a level much below the debt-
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
0.1 0.4 0.9 1.4 2.1 2.9 3.9 9.4
YieldtoMaturity(%p.a.)
Modified Duration (years)
DI Futures (nominals)
07-Aug-15
21-Jul-15
a month before
5.5
6.0
6.5
7.0
7.5
0.9 2.5 4.0 5.6 6.3 10.6 12.5 13.5
YieldtoMaturity(%p.a.)
Modified Duration (years)
NTN-B (linkers)
07-Aug-15
21-Jul-15
a month before
0.0
0.1
0.2
0.3
0.4
0.5
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
Yield Curve Volatility in Brazil
NTN-B 2050
NTN-B 2022
NTN-F 2025
DI jan-21
50-day std. deviation
Announcement
of new fiscal targets

Itaú BBA
17
HOME
neutral
7
) was apparently a trigger for the market to price in greater chances of a Brazilian sovereign rating downgrade
to high-yield territory. That expectation was later on strengthened by S&P’s decision to issue a negative outlook on the
Brazilian rating (currently at BBB-, the lowest notch in the high-grade camp).
The worsening perspectives spurred a major increase in Brazil CDS spreads, whose gains largely outpaced the
average rise in credit spreads for Latam and EM peers. The graphs show that the sell-off (especially on the back end)
of nominals and linkers tracked quite closely the spike in Brazilian country risk.
The re-pricing of Selic rate expectations and yield-curve premia – on fears related to the debt trends and rating outlook
– re-ignited the correlation between Brazilian nominal yields and the FX rate. Even in the longer segment (e.g., 2021s
and 2025s), the 100-day FX-correlation picked up markedly, reaching around 0.6.
There was a notorious decoupling between Brazilian rates and U.S. Treasuries (a proxy or benchmark for global rates),
which confirms the perception that the bear market in local rates was largely idiosyncratic. Especially if one bears in
mind the stability (or the smoother increase) in yields for similar maturities across other Latam markets.
7
We estimate this level to be around 2.5% of GDP in the long run.
165
205
245
285
325
365
5.5
5.8
6.1
6.4
6.7
7.0
Dec-14 Feb-15 Apr-15 Jun-15 Aug-15
Source: Bloomberg
Brazilian CDS x NTN-B 2050
% p.a.
bps
CDS Spreads (right)
NTN-B 2050
Announcement of new
fiscal targets
165
205
245
285
325
365
11.5
12.0
12.5
13.0
13.5
14.0
Dec-14 Feb-15 Apr-15 Jun-15 Aug-15
Source: Bloomberg
Brazilian CDS x NTN-F 2025
% p.a.
bps
CDS Spreads (right)
NTN-F 2025
Announcement of new
fiscal targets
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
Correlation Between Rates, FX
NTN-F 2025
Jan-21 DI
Jan-17 DI
Jan-16 DI
Correlation coefficient (100 days)
(critical level =0.10 for n=100 )
critical level
critical level

Itaú BBA
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As of August 13, DI futures were pricing in about a 30% chance for another rate hike of 25bps in September, despite
the BCB’s announced flight plan to hold the Selic rate at 14.25% for the coming months. The market and the Copom
continue to mind the potential damage that a much weaker BRL could bring to the inflation outlook for 2016, so that FX-
correlation should remain high on the front end.
We estimate that the local yield market was also projecting Selic cuts of about 150bps
8
until 2017, with terminal Selic
rate estimated at a nominal level around 11.90% (or a little more than 13.50%, disregarding the term premium). In
previous weeks, the market projected easing of 250bps until end-2017, and terminal rate just below 11%.
Since scenarios of fiscal difficulties in the long run can lead to higher steady-state inflation, it is quite natural that
breakeven inflation rates (BEIRs) shifted higher during the sell-off. On August 10, BEIRs across the curve of NTN-Bs
were running about 30-40bps higher than a month before. The longest spot breakeven rates were strolling just below
the upper-target prevailing until 2016 (6.5%), which compares to rates around 6.0% just a month earlier. More recently,
on August 13, the longest BEIRs were standing around 6.3%.
8
Our calculation is dependent on our term-premium assumption, as presented in the accompanying table. Our (static) term-premium assumptions are based on
the 5-year historical spreads between different tenors.
12.0
12.5
13.0
13.5
14.0
1.8
2.0
2.2
2.4
2.6
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
Global Yields and Local Rates
(duration: 5-9 years)
UST 10y
NTN-F 2025
% p.a.
% p.a.
5.3
5.6
5.9
6.2
6.5
6.8
7.1
2.2
2.5
2.8
3.1
3.4
3.7
4.0
Feb-14 Aug-14 Feb-15 Aug-15
Global Yields and Local Rates
(duration: 13-20 years)
UST 30y (nominal)
NTN-B 2050 (linker)
% p.a. % p.a.
TP =Term
Maturities Rates Ex-TP Premium (bps)
Jan17
Sep15 Vs.
Jan16
14.39% 14.26% 13
Jan18
14.05%
Jan16 Vs.
Jan17
13.93% 13.43% 50
Jan21
13.70%
Jan17 Vs.
Jan18
13.21% 12.21% 100
13.60%
Jan18 Vs.
Jan19
13.56% 12.40% 117
Jan19 Vs.
Jan21
13.39% 11.98% 142
Jan21 Vs.
Jan25
13.65% 11.90% 175
FRONT-END
Jan16 Vs.
Jul16
14.37% 13.87% 50
Note: The policy rate (Selic) currently stands at 14.25%
TERMINAL RATE
SPOT RATES
FORWARDS
BRAZIL: Forward-Implied Interest-Rate Expectations

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HOME
More recently (i.e., since August 11), there was a partial payback to this sell-off in Brazil local rates, with longer yields
coming back about a third of the upward move. There two factors behind the renewed optimism (or reduced
bearishness).
First, there are preliminary signs of streamlined relationship between the Executive branch and the Senate, which
include an agreement to pass some fiscal consolidation measures and to implement of some structural, pro-growth
reforms (those initiatives would still need to pass the Lower House).
Second, Moody’s has downgraded Brazil by one notch (to the lowest high-grade step) but kept a stable outlook, which
surprised positively the market, especially after the S&P move. From a policy standpoint, the stable outlook bought
some extra time for government officials to build a parliamentary consensus on the necessity to consolidate fiscal policy
and pass budget-fixing measures. From a market standpoint, the news from Moody’s favor tactical players willing to
spend a bit more time exposed to the high carry of Brazilian rates, with theoretically lesser risk of capital losses
associated with a surprising downgrade.
In terms of positioning, we believe there is just too much risk and volatility in place for low-frequency investors to put up
structural trades. Constructive scenarios are possible, should rating agencies smooth out future moves
9
, or if Brazilian
bond investors prove to be predominantly insensitive to rating (e.g., case of hedge funds), and if the Fed liftoff occurs
without much damage to global financial conditions (i.e., having been fully anticipated). In this case, the high level of
Brazilian yields can be attractive from both a carry and a duration standpoint, given a declining path for the Selic rate
ahead. In this type of scenario, there could be about a 200-bp downside on the long end, considering that unadjusted
terminal rate expectation factored in DI futures stand at 13.65% (i.e., 11.90% controlling for the term premium),
compared to a theoretical level of terminal market rates around 11.65% (i.e., just below 10% without term premium).
9
Fitch is the next agency expected to announce a decision on Brazilian rating. For now, it gives Brazil a BBB (second notch into high grades).
5.6
5.8
6.0
6.2
6.4
6.6
6.8
7.0
Aug-16
May-17
Aug-18
May-19
Aug-20
Aug-22
May-23
Aug-24
Aug-30
May-35
Aug-40
May-45
Aug-50
May-55
BEIRs: NTN-Bs
10-Ago-15
1-month before
% annual
previous upper-target (6.5%)
new upper-target (6.0%)

Itaú BBA
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HOME
Nonetheless, the baseline scenario envisions macro difficulties and market volatility. First (and foremost), the bar looks
very high to alter the course of budget trends so as to stabilize the government debt in sufficient timing. In other words,
the execution risks for the fiscal adjustment program are still very high. Especially as the recession is intensifying and
as the political news flow remains fluid. Both an activity recovery and a parliamentary support (to the fiscal measures)
are key factors appointed by rating agencies to avert further downgrades. Second, pressures on the BRL (e.g., CNY
spillover, further commodity price decline or more USD appreciation) may also be a limiting factor for (the speed and
depth of) interest-rate convergence.
That said, we still see current political, macro and market conditions largely fluid and choppy, so that we maintain a
skeptical view on Brazilian rates. For the time being, we envision limited downside for nominal rates from a structural
standpoint. Yet high-frequency investors may choose to set tactical receivers, playing on an intraday basis.
From a fundamental standpoint, the risks ahead may lead to higher inflation and expectations at some point, which
prompts us prefer linkers rather than nominals. However, the low inflation period in coming months (especially in
August) will naturally reduce the carry for the NTN-Bs.
Basically, we recommend neutrality on Brazilian rates (vis-à-vis benchmarks) and are tactically waiting for
better entry points to re-load payers and steepeners in our portfolio. Despite possible “tactical” developments
ahead, with current market conjectures possibly leading to a certain yield decline, we see steepeners and
payers as a position more consistent with the domestic fundamentals (as far as our macro projections go). If a
hypothetical rally takes place, bringing yields close to levels seen on July 21
st
(the eve of the fiscal targets
revision), that would surely be a trigger for us to build payers, especially on the back end.
Non-Brazil Latam: Mexico, Chile, Colombia
Latam local rates accompanied the (bear-) flattening trend seen in global markets, though with a larger upward move.
In Mexico and Chile, front-end rates rose amid pressures on the FX rates, triggering concerns (and hawkish
communications) by central bankers. Colombian rates followed a similar path, with a much more intense sell-off on the
front end and significant upward pressures on the back end. That followed the steeper depreciation of the COP (vis-à-
vis the MXN and CLP), the stronger contagion of CDS spreads from lower oil prices (vis-à-vis the Mexico and Chile),
and the increased tone of Banrep concerns about FX pass-through to inflation.
1.75%
3.65%
4.50%
1.75%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Theoretical "Fair Value" for Terminal Market
Rates in Brazil
U.S. Real Terminal Rate
CDS Spread (10-Year)
Domestic Inflation Mid-Target
Term Premium (Terminal)
% p.a.
Total: 11.65%

Itaú BBA
21
HOME
U.S. Treasury yield curve remains a key driver for Latam rates. This is particularly true for the back end, a sector where
Mexican, Chilean and Colombian rates continue to co-integrate with U.S. yields. Being a proxy (or a benchmark) for
global interest rates, U.S. Treasuries are one of the key elements determining the “steady-state” level of domestic
markets interest rates (see graph below). That explains the high correlation in the long end of Latam term structure.
The graphs that follow show the recent dynamics in 10-year swap rates in Mexico, Chile and Colombia, and how those
maturities have closely tracked their U.S. Treasury counterparty. Yet Colombian rates saw a bit of a de-coupling in
recent weeks, owing to idiosyncratic matters (strong FX depreciation, widening CDS spreads).
23
19
14
-3
-7
9
13
8
1
-1
51 50
35
19
32
-10
0
10
20
30
40
50
60
1Y 2Y 5Y 10Y 20Y
Recent Changes in Latam Yields
MEXICO
CHILE
COLOMBIA
basis-points
(monthly change)
1.75% 1.75% 1.75%
1.90% 1.45%
2.50%
3.00%
3.00%
3.00%
1.65%
1.00%
1.70%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
MEXICO CHILE COLOMBIA
Theoretical "Fair Value" for Terminal Market
Rates in Non-Brazil Latam
U.S. Real Terminal Rate
CDS Spread (10-Year)
Domestic Inflation Mid-Target
Term Premium (Terminal)
% p.a.
8.30%
7.20%
8.95%

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HOME
The graphs below show that the 100-day correlation with U.S. Treasuries on the back end (10-year zone) stands
around 0.70 for Chile and Colombia and on top of 0.90 for Mexico. As the Fed heads for the liftoff, a move that should
affect the entire term structure of U.S. yields, we believe long Latam rates should also undergo some (upward) re-
pricing. In other words, we expect this U.S. Treasury correlation to remain high for the coming months.
1.6
1.9
2.1
2.4
2.6
5.4
5.7
6.0
6.3
6.6
Aug-14 Nov-14 Feb-15 May-15 Aug-15
TIIE Swaps Vs. U.S. Treasuries
Mexico TIIE Swap - 10y
U.S. Treasury - 10y
% p.a. % p.a.
1.6
1.8
2.0
2.2
2.4
2.6
4.0
4.2
4.4
4.6
4.8
5.0
Camara Swaps Vs. U.S. Treasuries
Camara Swap - 10y
U.S. Treasury - 10y
% p.a.
% p.a.
1.6
1.8
2.0
2.2
2.4
2.6
5.7
5.9
6.1
6.3
6.5
6.7
IBR Swaps Vs. U.S. Treasuries
IBR Swap - 10y
U.S. Treasury - 10y
% p.a. % p.a.
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Aug-13 Feb-14 Aug-14 Feb-15 Aug-15
Correlation With 2-year U.S. Treasury
Mexico (TIIE swaps)
Chile (Camara swaps)
Colombia (IBR swaps)
Correlation Coefficient (100 days)
Critical level = 0.10 for n=100
Critical Level
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Aug-13 Feb-14 Aug-14 Feb-15 Aug-15
Correlation With 10-year U.S. Treasury
Correlation Coefficient (100 days)
Critical level = 0.10 for n=100
Critical Level
Mexico (TIIE swaps)
Chile (Camara swaps)
Colombia (IBR swaps)

Itaú BBA
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On the front end (2-year region), Mexican rates continue to move relatively aligned with shorter-date Treasuries (with
correlation around 0.6). Recent Banxico indications increased the probability of pre-emptive rate moves (i.e., in tandem
with the Fed, despite the slow activity and low inflation), so that this correlation should remain solid in coming weeks. In
Chile, however, the U.S. Treasury correlation has dropped quite markedly, despite the increased inflationary concerns
expressed by the BCCh.
After this introduction focusing on common causes and factors, we analyze below the specifics of local rates markets in
each country:
MEXICO:
The flattening pattern that took place in Mexican rates reflected increased market expectations of a Banxico rate action
in line with the Fed, despite the tepid activity recovery and record-low inflation. Authorities continue to mind the
potential inflationary damage from the weaker MXN. And, echoing these concerns, the front end of Mexican rates
(using TIIE swaps as proxy) has turned increasingly correlated with the FX rate.
In terms of current pricing, our forward rate analysis on TIIE swaps suggests that the front-end is pricing in hikes of
about 75—100bps across 2016
10
, and an additional 50—75bps (taking rate up to around 4.5%) for 2017.
The longer segment of the nominal curve points to terminal rate slightly above 6.75% (or just below 5.25%, deducting
our term premium hypothesis). Those number stand below the theoretical “fair value”
11
for the terminal rate in Mexico,
which we calculate around 8.30% (or 6.65%, removing the term premium). Clearly, our macro forecasts and
methodology suggest upside for Mexican rates ahead.
10
Our calculation is dependent on our term-premium assumption, as presented in the accompanying table. Our (static) term-premium assumptions are based
on the 5-year historical spreads between different tenors.
11
This estimate is based on the assumption that real U.S. terminal rate is 1.75%, given a 3.0% inflation target and a 10-year CDS spread around 190bps.
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Rates-FX Correlation in
Mexico
Source: Bloomberg, ItaúSource: Bloomberg, Itaú
1Y TIIE Swap
2Y TIIE Swap
5Y TIIE Swap
10Y TIIE Swap
critical level

Itaú BBA
24
HOME
That said, the key question is: “Where to place our payers?”. Our idea is to position at the 5-year zone, in order to
partly benefit from an expected re-pricing of the far long end (given the high correlation with U.S. Treasuries), and at
the same time partly benefit from further market expectations of tighter Banxico policy, especially in case of further
MXN depreciation.
Thus, we are opening a new trading recommendation to add payers in Mexico, paying the 5-year TIIE swap. The
entry is at 5.51%, and our target is 6.00%, with stop at 5.20%.
In our view, the liftoff process in the U.S. will prompt an upshift across the entire term structure of global rates
(pressuring mostly the front end, but also spilling over on the belly and back end), and that will likely push Mexican
rates closer to what we view as a fair-value (6.5%). Despite the recent gains in Mexican rates recently, we believe the
policy normalization is not entirely priced in.
As important risks to this trade, we can list a hypothetical weakening in global or U.S. activity, followed by an
unexpectedly soft Fed message (and decisions). Those could prompt a bull-flattening in yields across the globe,
affecting Mexican rates. Important to bear in mind that the starting point for this trade does not look extremely
comfortable, given a recent sell-off. Our target would mean the highest level since the 2013 “taper tantrum”.
CHILE:
In Chile, rates flattened recently, with upward pressure on the front end following the CLP weakening. That increased
the pass-through jitters in the market, amid signs of persistent inflation pressures in the short term.
TP =Term
Terms Rates Ex-TP Premium (bps)
2-year
1y 3.69% 3.49% 20
3-year
4.13%
1y1y 4.58% 4.28% 30
5-year
4.53%
2y1y 5.32% 4.79% 53
5.22%
3y1y 6.00% 5.20% 80
4y1y 6.53% 5.46% 106
5y5y 6.78% 5.13% 165
FRONT-END 6m6m 4.07% 3.92% 15
Note: The policy rate currently stands at 3.00%
MEXICO: Forward-Implied Interest-Rate Expectations
TERMINAL RATE
FORWARDS
SPOT RATES
4.6
4.8
5.0
5.2
5.4
5.6
5.8
6.0
Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15
Mexican TIIE Swaps (5-year)
5-year tenor
% p.a.

Itaú BBA
25
HOME
For the time being, the BCCh continues to see inflationary pressures as temporary and little contagion to expectations.
However, in the last communications, the board has been expressing increased concerns about inflation, and also
mentioning doubts about how disinflationary the output gap really is as of now.
We calculate that Camara swap forwards
12
price in rate hikes of 25bps for 2016 and additional 25—50bps hikes until
2017, differing a bit from our scenario of stable rate (at least until early 2017).
On the back end, we continue to see upside ahead, for the following reasons: firstly, long yields remains largely
correlated with U.S. rates and we look for more upward pressures in the global term structure ahead; second, we
estimate that market-implied terminal rate expectations now sit around 5.25%(or 4.25%, controlling for our term
premium hypothesis), which is much lower than our theoretical “fair value”
13
level of 7.2% (or 6.2% adjusted for the term
premium); third, on the domestic front, if inflation pressures prove even more persistent than expected, this can lead to
revisions of the output gap and neutral rate estimates (both by the BCCh and the market), which could translate into
upside pressure on the long end.
With this rationale in mind, we are setting payers at the 10-year region of Camara swaps: the entry is 4.6%, with
target at 5.20% and stop at 4.30%.
The list of key risks for this trade is similar to those for our payers in other Latam markets: a hypothetical weakening in
global or U.S. activity, or soft Fed messages (and decisions). Another leg down in commodity prices should also hurt
this recommendation. As in other cases, the entry level implies some risk as well: our target implies the highest level in
a little more than a year.
12
Our calculation is dependent on our term-premium assumption, as presented in the accompanying table. Our (static) term-premium assumptions are based
on the 5-year historical spreads between different tenors.
13
The “fair-value” estimate follows an expected real U.S. terminal rate at 1.75%, a 3.0% inflation target and a 10-year CDS spread at 145bps.
TP =Term
2-year
1y 3.19% 3.04% 15
3-year
3.45%
1y1y 3.71% 3.49% 23
5-year
3.70%
2y1y 4.20% 3.82% 38
4.06%
3y1y 4.46% 3.91% 55
4y1y 4.74% 4.03% 72
5y5y 5.12% 4.12% 100
FRONT-END 6m6m 3.30% 3.19% 11
Note: The policy rate (TPM) currently stands at 3.00%
TERMINAL RATE
CHILE: Forward-Implied Interest-Rate Expectations
SPOT RATES
FORWARDS

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COLOMBIA:
In Colombia, the monetary policy scenario has changed since our last report. Although Banrep retained a neutral tone
and left the policy rate unchanged at 4.50%, the decision was not unanimous. “Some” voting members of the board
supported a hike. The split decision surprised the markets, suggesting increased policymakers’ concerns with the pass
through from FX to inflation. After the policy meeting, some Banrep co-directors reiterated that monetary policy should
act to avert a de-anchoring of inflation expectations from the 3% mid-target.
Although the very latest communications from Banrep Governor Uribe and Finance Minister Cardenas dissipated a bit
the fears of a monetary tightening, the hawkish signals paved the way for a sell-off across the whole curve of nominal
rates early in August. That move was also led by the worsening in expected fundamentals, following the oil slump
(translating into wider CDS spreads).
According to our forward rate analysis, shorter-dated IBR swaps currently price in a 25-bp rate hike in 2016. For 2017,
the market prices in high chances for another move of 25bps. That contrasts with our scenario of no rate changes until
end-2016. Yet we acknowledge the central bank may change its policy stance should the COP pass-through prompt
unpleasant inflation surprises.
On the back end, market-implied terminal rate expectations now sit at 7.65% (or 5.95%, controlling for our term
premium hypothesis). That falls short of our theoretical “fair value”
14
of about 9.0% (or 7.2% adjusted for the term
premium).
14
The “fair-value” estimate follows an expected real U.S. terminal rate at 1.75%, a 3.0% inflation target and a 10-year CDS spread at 250bps.
4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
5.6
Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15
Chilean Camara Swaps (10-year)
10-year tenor
% p.a.
TP =Term
2-year
1y 5.09% 4.69% 40
3-year
5.20%
1y1y 5.30% 4.75% 55
5-year
5.42%
2y1y 5.88% 5.06% 82
5.79%
3y1y 6.15% 5.10% 105
4y1y 6.56% 5.28% 128
5y5y 7.64% 5.94% 170
FRONT-END 6m6m 5.32% 5.02% 30
Note: The policy rate currently stands at 4.50%
TERMINAL RATE
SPOT RATES
FORWARDS
COLOMBIA: Forward-Implied Interest-Rate Expectations

Itaú BBA
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Given the balance of payments vulnerabilities in the Colombian economy, we believe the odds remain skewed towards
further COP depreciation (despite the results from our fair value models presented in the Currencies section). That
generates risks for the entire term structure of interest rates, since the Colombian curve of nominals (especially IBR
swaps) remains largely correlated with the FX rate.
In our view, there is an opportunity to add steepener in IBR swaps, in order to anticipate a possible scenario of further
FX rate pressures being accommodated by Banrep, leading to widening BEIRs for longer horizons. That could pressure
down the front end and lift the back end.
At the same time, we also want to explore the remaining gap between long rates and our theoretical fair value, as well
as the high correlation between longer-dated IBR swaps and U.S. Treasuries (despite risks of a spillover into shorter-
dated rates). A scenario of Fed liftoff prompting an upward shift in U.S. yields (even if a mild one) would favor such a
view, both from the global rates and FX channels.
With that in mind, we recommend adding a steepener in IBR swaps, paying the 10-year and receiving the 1-year.
We enter at 166bps and our target is 250bps (stop at 125bps).
In order to pare the elevated risks of upward rate pressures on the front end amid an additional hypothetical COP
weakness, we implement this trade with DV01 neutral. That buys time for the market to become convinced that Banrep
may not raise rates, before the trade is topped out under these circumstances. Hawkish Banrep remarks (signaling rate
hikes) down the road would also hurt this trade, and possibly on both legs.
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Rates-FX Correlation in Colombia
1Y IBR Swap
2Y IBR Swap
5Y IBR Swap
10Y IBR Swap
critical level
0
50
100
150
200
250
300
350
400
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
ago-13 jan-14 jun-14 nov-14 abr-15
Colombian IBR Swaps (steepener)
10-year tenor
1-year tenor
1y10y spread
% p.a. bps

Itaú BBA
28
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APPENDIX: Latam Rates Tracker
Prices updated as of August 13, 2015
Brazil
Amount
Outstanding
Modified
Duration
Last Price Δ1M Δ1Q Δ1H Δ1Y
(BRL Billions) (Years) (% a.a.)
CDI RATE - - 14.13 49 100 204 332
Sep-15 - 0.1 14.14 27 54 113 -
Oct-15 - 0.1 14.18 22 49 111 290
Jan-16 - 0.4 14.25 21 43 107 283
Apr-16 - 0.6 14.30 26 48 108 278
Jul-16 - 0.9 14.25 30 48 101 265
Oct-16 - 1.1 14.14 33 47 97 248
Jan-17 - 1.4 13.93 37 40 83 225
Jul-17 - 1.9 13.72 50 39 72 195
Oct-17 - 2.1 13.67 57 42 71 188
Jan-18 - 2.4 13.58 63 44 64 176
Jul-18 - 2.9 13.57 74 51 66 170
Jan-19 - 3.4 13.54 81 57 66 166
Jul-19 - 3.9 13.56 86 67 74 167
Jan-21 - 5.4 13.44 84 69 77 151
Jan-25 - 9.4 13.48 91 81 88 140
Oct-15 143.2 0.1 14.22 22 49 114 -
Jan-16 119.0 0.3 14.23 19 40 108 299
Apr-16 101.9 0.5 14.32 25 47 111 -
Jul-16 63.9 0.8 14.22 24 42 98 267
Oct-16 37.3 1.0 14.15 31 44 95 -
Jan-17 56.3 1.2 13.93 35 37 83 220
Jul-17 51.0 1.6 13.72 46 33 71 -
Oct-17 5.8 1.9 13.69 - - - -
Jan-18 49.8 2.1 13.56 43 39 65 -
Jul-18 45.7 2.5 13.60 62 47 71 -
Jan-19 70.7 3.0 13.59 - - - -
Jul-19 7.8 3.4 13.60 - - - -
Jan-17 71.0 1.1 13.93 34 37 82 212
Jan-18 14.3 1.9 13.58 62 43 69 172
Jan-19 10.2 2.5 13.54 83 58 73 165
Jan-21 84.6 3.7 13.48 81 69 74 152
Jan-23 51.5 4.5 13.49 89 75 84 151
Jan-25 54.7 5.2 13.48 88 75 84 -
Aug-16 77.6 0.9 7.34 28 7 145 210
May-17 42.3 1.5 6.84 31 14 119 159
Aug-18 53.2 2.5 7.02 49 33 80 139
May-19 52.9 3.1 7.06 49 36 - -
Aug-20 51.0 4.0 7.07 59 54 82 122
Aug-22 78.1 5.2 7.08 67 69 83 112
Mar-23 0.0 5.6 7.14 71 75 92 124
May-23 39.0 5.7 7.10 64 70 - -
Aug-24 43.0 6.3 7.05 65 73 76 101
Aug-30 27.1 9.0 6.86 57 79 52 78
May-35 36.0 10.6 6.88 56 78 53 78
Aug-40 34.7 11.6 6.74 52 68 38 60
May-45 68.2 12.5 6.75 49 69 39 58
Aug-50 105.2 12.9 6.75 54 72 39 56
May-55 8.2 13.5 6.75 52 68 - -
REALRATES
NTN-B
(basis points)
NOMINALRATES
DIFuturesLTNNTN-F

Itaú BBA
29
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Mexico
Amount
Outstanding
Modified
Duration
(MXN Billions) (Years) (% a.a.)
TIIE Rate - - 3.31 1 1 1 2
3-month - 0.2 3.44 12 9 11 17
6-month - 0.5 3.63 23 13 14 35
9-month - 0.7 3.82 28 17 25 53
1-year - 1.0 4.02 30 23 25 69
2-year - 1.9 4.43 21 13 17 67
3-year - 2.8 4.85 20 8 19 60
4-year - 3.7 5.22 18 7 21 58
5-year - 4.5 5.53 16 5 27 49
7-year - 5.9 5.97 4 0 33 34
10-year - 7.6 6.31 -5 -6 37 23
15-year - 10.2 6.71 -9 -7 37 14
20-year - 11.2 6.89 -10 -10 36 11
30-year - 12.7 7.11 -9 -6 32 13
Dec-15 102.8 0.3 3.35 12 16 6 28
Jun-16 142.4 0.8 3.65 13 4 -1 40
Dec-16 129.7 1.3 3.92 9 5 1 35
Jun-17 114.7 1.7 4.23 16 8 2 46
Dec-17 159.1 2.1 4.53 18 4 6 38
Jun-18 211.1 2.6 4.74 16 3 0 25
Dec-18 165.0 2.9 4.96 15 1 7 38
Dec-19 88.0 3.9 5.25 14 -4 9 -
Jun-20 96.2 4.0 5.36 17 -7 15 35
Jun-21 130.4 4.8 5.57 7 -7 17 32
Jun-22 106.9 5.5 5.76 3 -6 22 30
Dec-23 93.1 6.2 5.93 -2 -8 25 29
Dec-24 237.4 6.4 5.99 0 -5 30 29
Jun-27 86.5 8.0 6.21 -3 -10 22 17
May-29 93.1 8.6 6.31 -3 -12 22 7
May-31 137.8 9.4 6.41 -7 -15 22 0
Nov-34 57.7 10.5 6.52 -9 -13 26 0
Nov-36 61.3 10.5 6.55 -9 -15 25 -5
Nov-38 105.6 11.2 6.63 -10 -12 30 -4
Nov-42 125.1 12.1 6.64 -10 -12 29 -7
Jun-16 161.2 0.8 -0.03 12 -90 -97 -6
Dec-17 104.2 2.3 1.00 12 -41 -22 30
Jun-19 90.2 3.6 1.98 19 -19 8 64
Dec-20 90.7 5.0 2.37 16 -9 16 54
Jun-22 112.6 6.4 2.66 15 -7 31 63
Dec-25 117.5 8.4 2.99 9 5 34 62
Nov-35 114.0 13.8 3.42 -7 -4 29 26
Nov-40 231.1 16.2 3.54 -9 -4 32 27
Nov-46 57.7 18.3 3.57 -7 -2 33 26
NOMINALRATES
(basis points)
TIIESwaps
REALRATES
UDIBONOMBONO

Itaú BBA
30
HOME
Chile
Amount
Outstanding
Modified
Duration
(CLP Billions) (Years) (% a.a.)
Interbank Rate - - 3.00 6 0 0 -76
3-month - 0.3 3.02 1 -1 2 -26
6-month - 0.5 3.08 6 4 8 -10
9-month - 0.7 3.10 4 -2 9 -4
1-year - 1.0 3.19 9 -5 17 7
18-month - 1.5 3.39 13 -5 23 26
2-year - 1.9 3.45 9 -12 17 32
3-year - 2.9 3.70 8 -13 21 37
4-year - 3.7 3.89 8 -11 21 37
5-year - 4.6 4.06 7 -11 19 33
6-year - 5.4 4.18 2 -10 15 27
7-year - 6.1 4.28 -4 -10 12 22
8-year - 6.9 4.40 -2 -7 15 16
9-year - 7.5 4.49 -5 -8 14 13
10-year - 8.2 4.59 -4 -5 19 14
15-year - 10.9 4.76 -3 -6 15 10
20-year - 13.0 4.88 -3 -6 15 10
Mar-17 170.2 1.0 3.37 1 -32 5 2
Jan-18 450.0 1.9 3.60 6 -35 13 13
Mar-18 344.1 1.9 3.61 6 -37 12 13
Jan-19 290.0 2.8 3.74 -7 -35 - -
Jan-20 762.5 3.7 4.03 3 -27 13 5
Jan-22 475.4 5.5 4.24 -1 -14 11 6
Jan-24 530.0 6.3 4.45 1 -12 25 -
Mar-26 755.0 8.0 4.54 - - - -
Jan-32 464.7 10.4 4.65 -26 -6 23 8
Jan-34 415.0 11.2 4.72 -14 0 28 -1
Jan-43 685.8 14.4 4.84 -6 -8 21 -9
Feb-16 388.5 0.0 3.13 0 -24 7 -
Aug-16 311.5 1.0 3.21 -5 -23 1 -
Jan-17 175.0 1.0 3.34 6 -37 9 6
Jun-17 175.0 1.9 3.38 2 -37 - -
Mar-18 246.8 1.9 3.60 6 -34 - -
May-18 83.6 2.8 3.59 5 -35 9 16
Jun-18 243.2 2.8 3.60 6 -35 - 12
Apr-20 450.0 3.9 4.06 2 -37 - -
Feb-21 470.0 4.6 4.07 0 -23 - 1
Mar-22 350.0 5.5 4.23 -3 -16 11 5
Mar-23 245.0 5.9 4.30 -10 -17 10 -
Oct-15 201.8 0.1 -0.39 -12 -89 -105 -141
Jan-16 261.6 0.4 -0.35 -73 -91 -77 -136
Feb-16 832.4 0.5 -0.16 -47 -71 -53 -
Aug-16 554.9 1.0 0.00 -34 -62 -49 -
Mar-17 317.8 1.5 0.21 -31 -50 -39 -88
May-17 194.2 1.7 0.33 -18 -38 -31 -80
Jul-17 312.8 1.8 0.39 -14 -34 - -77
Jan-18 332.2 2.3 0.37 - -57 -38 -85
Mar-18 577.6 2.4 0.39 -33 -56 - -
Jul-18 419.5 2.8 0.41 -36 -62 -38 -86
Aug-18 204.3 2.8 0.41 -31 -61 - -
Oct-18 140.5 3.0 0.44 -32 -63 -37 -80
May-19 24.2 3.5 0.58 -26 -48 -36 -68
Feb-21 1,109.8 5.1 0.96 -10 -25 -5 -
Mar-22 580.1 5.9 1.12 -18 -26 -2 -38
Sep-22 210.6 6.0 1.24 - -16 3 -13
Mar-23 277.5 6.7 1.27 - - 6 -11
May-28 289.6 10.6 1.70 -6 6 23 -15
Feb-31 706.3 12.5 1.78 - 0 29 -9
Feb-41 706.3 18.5 1.88 -11 3 26 -
(basis points)
CAMARASwaps
REALRATES
BCUBTPBCP
NOMINALRATES

Itaú BBA
31
HOME
Colombia
Amount
Outstanding
Modified
Duration
(COP Billions) (Years) (% a.a.)
IBR Rate - - 4.36 -1 1 0 42
3-month - 0.0 4.60 17 20 23 32
6-month - 0.2 4.72 26 26 37 31
9- month - 0.5 4.86 33 40 54 35
1-year - 0.7 4.95 38 47 64 34
18-month - 1.2 5.04 32 48 70 25
2-year - 1.7 5.05 37 53 77 28
3-year - 2.6 5.28 37 59 88 31
4-year - 3.4 5.46 26 51 76 28
5-year - 4.2 5.65 23 40 70 29
7-year - 5.7 6.07 23 37 63 35
8-year - 6.3 6.28 21 40 64 43
10-year - 7.5 6.57 11 33 63 45
12-year - 8.2 6.83 17 36 66 56
15-year - 9.0 7.03 25 38 69 38
20-year - 9.9 7.11 21 34 60 6
Oct-15 12,595 0.2 4.69 17 5 7 -13
Jun-16 20,649 0.8 5.01 44 23 32 -20
Jul-16 4,226 0.8 4.95 26 16 22 -22
Oct-18 12,991 2.5 5.91 30 45 67 -17
Nov-18 10,233 2.8 5.80 31 50 66 1
Sep-19 8,325 3.3 6.18 28 56 - 17
Jul-20 10,329 3.9 6.49 28 58 91 18
May-22 11,922 5.1 6.92 4 36 62 30
Jul-24 21,544 6.1 7.33 6 39 74 63
Aug-26 8,434 6.8 7.81 -4 53 - 77
Apr-28 10,393 8.1 7.94 0 38 73 79
Sep-30 3,406 8.0 8.24 10 55 74 -
May-17 11,458 1.7 1.76 -42 8 69 -57
Apr-19 5,690 3.4 2.40 -48 10 - -
Mar-21 9,359 4.9 3.19 -33 21 63 -14
Feb-23 13,338 6.2 3.60 -18 31 52 11
May-25 1,938 8.0 3.82 -8 36 - -
Mar-33 5,948 12.8 4.21 5 31 - -
(basis points)
REALRATES
UVR
NOMINALRATES
COLTESIBRSwaps

Itaú BBA
32
HOME
DISCLAIMER
Itaú BBA is a brand name of Itaú Corretora de Valores S.A.
Ratings: Definitions, Dispersion and Banking Relationships
Ratings
(1)
Definition
(2)
Coverage
(3) Banking
Relationship
(4)
Outperform
The analyst expects the stock to perform better than
market average.
43% 38%
Market Perform
The analyst expects the stock to perform in line with
market average.
40% 35%
Underperform
The analyst expects the stock to perform below
market average.
17% 15%
1. The ratings used herein (Outperform, Market Perform and Underperform), correspond approximately to Buy, Hold and Sell,
respectively.
2. Ratings reflect the analyst’s assessment of the stock price performance in the medium term compared with market average.
Recommendations will remain valid until the analyst changes the rating, which may happen as a result of news or simply
due to a change in the stock price (there is no defined time horizon). Companies are grouped into industries, according to
their similarities. The industries are: (i) Banking & Financial Services, (ii) Consumer Goods & Retail + Food & Beverage, (iii)
Healthcare + Education, (iv) Steel & Mining + Pulp & Paper, (v) Oil, Gas & Petrochemicals + Agribusiness, (vi) Real Estate,
(vii) Telecommunications, Media and Technology, (viii) Transportation, Manufacturing and Logistics, (ix) Utilities, and (x)
Equity Strategy.
3. Percentage of companies covered by Itaú Corretora de Valores S.A. within this rating category.
4. Percentage of companies within this rating category, for which Itaú Unibanco S.A. or any of its affiliated companies
provided investment banking services over the last 12 (twelve) months, or which may be provided during the next 3 (three)
months.
Relevant Information
1. This report has been prepared and issued by the Macro Research Department of Banco Itaú Unibanco S.A. (“Itaú Unibanco”). This report
is not a product of the Equity Research Department of Itaú Unibanco or Itaú Corretora de Valores S.A. and should not be construed as a
research report (‘relatório de análise’) for the purposes of the article 1 of the CVM Instruction NR. 483, dated July 06, 2010.
2. This report aims at providing macroeconomics information, and does not constitute, and should not be construed as an offer to buy or sell,
or a solicitation of an offer to buy or sell any financial instrument, or to participate in any particular trading strategy in any jurisdiction. The
information herein is believed to be reliable as of the date on which this report was issued and has been obtained from public sources
believed to be reliable. Itaú Unibanco Group does not make any express or implied representation or warranty as to the completeness,
reliability or accuracy of such information, nor does this report intend to be a complete statement or summary of the markets or
developments referred to herein. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst
responsible for the substance of this report as of the date on which it was issued and are, therefore, subject to change without notice. Itaú
Unibanco Group has no obligation to update, modify or amend this report and inform the reader accordingly.
3. The analyst responsible for the production of this report, whose name is highlighted in bold, hereby certifies that the views expressed
herein accurately and exclusively reflect his or her personal views and opinions and were prepared independently and autonomously,
including from Itaú Unibanco, Itaú Corretora de Valores S.A. and other group companies.
4. This report may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the prior written
consent of Itaú Unibanco. Additional information on the financial instruments discussed in this report is available upon request. Itaú
Unibanco and/or any other group companies is not, and will not be liable for any investment decisions (or otherwise) based on the information
provided herein.
Additional Note to reports distributed in: (i) U.K. and Europe: Itau BBA International plc: This material is distributed and authorized by Itau
BBA International plc (IBBA UK) pursuant to Section 21 of the Financial Services and Markets Act 2000. The material describing the services
and products offered by Itaú Unibanco S.A. (Itaú) has been prepared by that entity. IBBA UK is a subsidiary of Itaú. Itaú is a financial institution
validly existent under the laws of Brazil and a member of the Itaú Unibanco Group. Itau BBA International plc registered office is The Broadgate
Tower, level 20, 20 Primrose Street, London, United Kingdom, EC2A 2EW and is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority (FRN 575225). Itau BBA International plc Lisbon Branch
is regulated by Banco de Portugal for the conduct of business. Itau BBA International plc has representative offices in France, Colombia,
Germany, and Spain which are authorised to conduct limited activities and the business activities conducted are regulated by Banque de
France, Superintendencia Financiera de Colombia, Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin), and Banco de España
respectively. None of the offices and branches deal with retail clients. For any queries please contact your relationship manager. For more
information go to: www.itaubba.co.uk; (ii) U.S.A: Itau BBA USA Securities, Inc., a FINRA/SIPC member firm, is distributing this report and
accepts responsibility for the content of this report. Any US investor receiving this report and wishing to effect any transaction in any security
discussed herein should do so with Itau BBA USA Securities, Inc. at 767 Fifth Avenue, 50th Floor, New York, NY 10153; (iii) Asia: This report
is distributed in Hong Kong by Itaú Asia Securities Limited, which is licensed in Hong Kong by the Securities and Futures Commission for Type
1 (dealing in securities) regulated activity. Itaú Asia Securities Limited accepts all regulatory responsibility for the content of this report. In Hong
Kong, any investors wishing to purchase or otherwise deal in the securities covered in this report should contact Itaú Asia Securities Limited at
29th Floor, Two IFC, 8 Finance Street – Central, Hong Kong; (iv) Japan: This report is distributed in Japan by Itaú Asia Securities Limited –
Tokyo Branch, Registration Number (FIEO) 2154, regulated by Kanto Local Finance Bureau, Association: Japan Securities Dealers
Association; (v) Middle East: This report is distributed by Itau Middle East Limited. Itau Middle East Limited is regulated by the Dubai
Financial Services Authority and is located at Suite 305, Level 3, Al Fattan Currency House, Dubai International Financial Centre, PO Box
482034, Dubai, United Arab Emirates . This material is intended only for Professional Clients (as defined by the DFSA Conduct of Business
module) no other persons should act upon it; (vi) Brazil: Itaú Corretora de Valores S.A., a subsidiary of Itaú Unibanco S.A authorized by the
Central Bank of Brazil and approved by the Securities and Exchange Commission of Brazil, is distributing this report. If necessary, contact the
Client Service Center: 4004-3131* (capital and metropolitan areas) or 0800-722-3131 (other locations) during business hours, from 9 a.m. to 8
p.m., Brasilia time. If you wish to re-evaluate the suggested solution, after utilizing such channels, please call Itaú’s Corporate Complaints
Office: 0800-570-0011 (on business days from 9 a.m. to 6 p.m., Brasilia time) or write to Caixa Postal 67.600, São Paulo-SP, CEP 03162-971.
* Cost of a local call.
Relevant Information – Analysts
Analysts
Disclosure Items
1 2 3 4 5
Mauricio Oreng
Ciro Matuo
Eduardo Marza
Ilan Goldfajn: Chief Economist
André Merschmann
1. The investment analysts involved in the preparation of this report are related to an individual who works for the issuer object of this analysis
report. The nature of this relationship is...
2. The investment analysts, their spouses or companions, have a direct or indirect stake, in their names, in the capital stock and/or other
securities issued by the companies object of their analysis.
3. The Investment analysts, their spouses or companions, are directly or indirectly involved in the purchase, sale, disposal or trading of
securities that are the object of this report.
4. The investment analysts, their spouses or companions, have a direct or indirect financial interest in the issuing company of the securities
analyzed in this report.
5. The investment analysts, their spouses or companions, deal with shares of mutual funds which concentrate their investments in the analyzed
company or in the company’s industry, or in which they can directly or indirectly influence their management or administration

ItauBBA_FISE_Aug2015

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