Peso holds firm, carry intact as markets digest the surge in long-end yields

Good morning!

Signal of the day: long rates move and oil breaks down

The day opens with two tensions that deserve separate attention. First, the 10Y UST rose 0.94% to 4.49% — a significant move suggesting that the bond market is not entirely convinced that disinflation in the U.S. is linear. The 2s10s spread remains positive at 27bps, with the curve in moderate bear steepening territory: the short end well anchored (2Y at 4.19%) and the long end beginning to price in some duration risk premium. Second, oil plunges 4.20% to $73.38 per barrel — that is not noise, it is a global demand signal that the equity market has not yet finished processing, even as S&P futures bounce +0.44% in premarket following a negative close of -0.30%.

The peso and carry: strength has a technical floor and a differential carry

USD/MXN is trading at 17.32, with the peso appreciating 0.19% and holding comfortably below the technical resistance at 17.4865. The key support sits at 17.1459 — that level has acted as a floor over recent sessions and is the level to defend. Realized volatility at 6.82% remains contained, and the VIX at 17.50 alongside the MOVE at 65.39 confirm that options markets are not pricing in immediate disruptions. The carry differential of 2.87pp (TIIE28 6.75% vs. Fed 3.63%) remains the fundamental anchor for the peso. Market stance: with the carry differential at these levels, the short-term bias favors the peso as long as the DXY stays below 101-102 and global risk appetite does not materially deteriorate. The oil decline is the risk to monitor most closely, as it can filter fiscal and current account pressure through to MXN with a lag of several days.

Rates and curve: moderate bear steepening, watch the long end

The UST curve shows a structure worth analyzing: from the 1M at 3.69% to the 30Y at 4.90%, the slope is well established. Today's move in the 10Y suggests the market is re-evaluating the term premium — not necessarily unanchored inflation, but a curve that is no longer willing to ignore the magnitude of the U.S. fiscal deficit. For Mexico, this matters because a 10Y UST consolidating above 4.50% pressures differentials and can reduce the relative attractiveness of the peso carry. For now the differential holds, but Friday will be decisive.

The path ahead: a high-voltage Friday

The week's key event arrives on Friday, June 26, with a double impact: U.S. PCE and Banxico's rate decision on the same day. The market is already pricing in a Banxico hold, but the signal from the statement — and whether there are dissenting votes — will shift the forward reading of the rate differential. If PCE comes in hot, the market will reprice Fed expectations and the DXY could recover ground, adding pressure to the peso from the dollar side. On July 3 we get NFP, which will complete the picture of U.S. macro data heading into the summer. Bitcoin at 65,019 (+2.82%) and gold edging slightly lower (-0.39% to 4,208) round out a picture where risk-on has a life of its own but with nuance. The Risk On Score of 71/100 — CONSTRUCTIVE neatly captures the state of the market: constructive, not euphoric, with binary catalysts approaching that justify keeping the radar on and remaining vigilant.

— See you tomorrow with the Wednesday view.