Legacy Capital and Vinland Capital were among the Brazilian hedge funds to capitalise on Mexico’s shifting monetary policy last month, profiting from bets that the country’s central bank, Banxico, would accelerate interest rate cuts, according to a report by Bloomberg.
In January, Mexico’s swap rates dropped significantly, with one-year contracts falling by more than 50 basis points. Brazilian funds seized the opportunity, piling into receiver positions, which benefit from declining interest rate futures, as they anticipated a faster pace of monetary easing amid Mexico’s slowing economy.
Legacy and Vinland outperformed many peers tracked by Bloomberg, the former posting a 2.3% return net of fees, while Vinland achieved a 1.5% return. Both funds attributed part of their gains to successful bets on Mexico’s falling rates. These returns compared favourably to the 1% gain in Brazil’s overnight CDI benchmark rate.
Itau Janeiro, a hedge fund managed by Itau Asset Management, also bet on Mexico’s rate cuts, focusing its exposure on short-term tenors. The fund rose 2.8% in January, bolstered by expectations of a more dovish Banxico.
“Odds of bigger Mexico cuts were completely mispriced,” said Jose Oswaldo Monforte, Portfolio Manager at Vinland Capital. “Now, those expectations are better reflected in asset prices, so the risks aren’t as asymmetric anymore.”
Traders now anticipate a 50 basis-point cut at Banxico’s upcoming meeting, with nearly 180 basis points of easing predicted over the next 12 months — up from 110 basis points forecast just a month ago.
The Mexican peso has risen 1% this year, buoyed by news that Trump has delayed 25% tariffs on Mexican exports following discussions with President Claudia Sheinbaum.
