20180620-法国巴黎银行-Brazil_bonds__Measuring_the_impact_of_National_Treasury_Intervention_strategy_9页_401kb

EM/LATAM Strategy Summary: Brazil Bonds and National Treasury Intervention

Core Content

This document provides an analysis of the Brazilian National Treasury (BNT) intervention strategy in the bond market and its implications for the DI curve and market participants. It is produced by BNP Paribas Brasil S.A. and outlines the current state of the bond market, the impact of BNT's actions, and the regulatory changes that support the market's efficiency.

Key Information

• BNT Intervention: The BNT has continued its daily bond buy-back program and canceled the scheduled auctions for LTN and NTN-F for the week. It reaffirmed the continuation of the buy-back program until the end of June 2018.
• DV01 Withdrawal: Since the start of the intervention, the BNT has withdrawn USD 1.2mn DV01 through bond buy-back auctions. Market portfolio risk decay has been USD 1.4mn DV01, resulting in a total reduction of USD 2.6mn DV01 (or 3.9% of the total market DV01).
• Public Debt DV01: The total public debt USD DV01 (excluding NTN-B) is estimated at USD 66.2mn.
• BNT Cash Position: BNT holds BRL 570bn in cash and expects to receive an additional BRL 100bn from BNDES by the end of 2018. This positions BNT to remain on the sidelines for a considerable period.
• CMN Regulatory Changes: The National Monetary Council (CMN) has announced that the minimum duration requirement for insurance and pension funds will be reduced from 730 days to 548 days by the end of the month, and will be fully removed by August 2019. This allows these funds to reduce their bond duration and participate more actively in BNT auctions.
• Impact on DI Curve: The changes in regulations and BNT's intervention are expected to reduce market friction and improve the efficiency of the DI curve. This, in turn, supports the idea that the DI curve offers significant opportunities, especially in the belly of the curve (FRAs: Jan-21s20s and Jan-23s22s).
• Market Participation: The CMN and BCB measures aim to increase the supply of government securities in the market, encouraging market participants to engage in BNT auctions and narrowing the gap between local currency bond yields and the swap curve.

Main Views

• The BNT's continued buy-back program and the cancellation of auctions indicate a strong intervention to stabilize the bond market.
• The reduction in the minimum duration requirement for insurance and pension funds is a positive development for market liquidity and efficiency.
• The DI curve, despite political and economic risks, remains attractive due to the potential for yield opportunities.
• The current strategy supports the continuation of the daily buy-back program, as it is believed to contribute to market stability and risk management.
• The combination of BNT's intervention and regulatory changes is expected to enhance the effectiveness of the government's market operations and reduce the pressure on the DI curve.

Strategic Implications

• FRAs Opportunities: The document highlights the potential for FRAs in the middle of the DI curve, particularly those maturing in January 2021 and 2023.
• Market Efficiency: The measures from CMN and BCB are seen as positive steps towards a more efficient market, reducing the impact of technical stops and aligning bond yields with swap rates.
• Investment Position: The authors currently hold receiver positions in the mentioned FRAs, indicating a bullish stance on the DI curve at current levels.

Legal and Regulatory Notes

• The document is a marketing communication and not independent research, as per MiFID II regulations.
• It does not constitute investment advice and should not be relied upon for making investment decisions.
• BNPP may have conflicts of interest due to its involvement in investment banking, underwriting, or advisory services related to the issuers or products mentioned.
• The document contains performance data based on back-testing, which is for illustrative purposes only and not indicative of future results.
• Certain information may be restricted and only available to Qualified Institutional Buyers (QIBs) or non-US persons under applicable regulations.
• The document is subject to legal disclaimers and should be used with caution, as it may not be suitable for all investors.

Important Disclosures

• The information is based on public sources and may not have been independently verified.
• BNPP does not accept any liability for the accuracy or completeness of the information provided.
• The document is intended for professional clients and eligible counterparties, and may not be distributed to other persons without prior consent.
• All information is as of 18 June 2018 and may be subject to change without notice.
• Transactions based on this document are not guaranteed and are subject to market conditions and other factors.

Conclusion

The BNT's intervention and the CMN's regulatory changes are expected to enhance market stability and efficiency. The DI curve is viewed as offering substantial opportunities, especially in the FRA segments. The authors maintain a bullish outlook on these instruments and are currently holding receiver positions.