20180906-法国巴黎银行-Brazil_reviews_annual_borrowing_plan__implications_until_the_end_of_the_year_11页_425kb

Summary of the Latin America Strategy Report: Brazil's Annual Borrowing Plan Review

Core Content

This report outlines the recent changes in Brazil's 2018 Annual Borrowing Plan (ABP), as reviewed and analyzed by BNP Paribas Brasil S.A. The focus is on the National Treasury (BNT)'s strategy to adjust the issuance limits of floating-rate bonds (LFTs) and its implications on public debt, market exposure, and the cost of debt.

Main Points

• Adjustment to Annual Borrowing Plan
  On 5 September 2018, the BNT revised the upper and lower limits for floating-rate bond (LFT) issuance in the 2018 ABP. This change was made to address market uncertainty, both domestic and international, and to ensure better alignment with current market conditions.

• New Issuance Limits
  The revised limits for the 2018 ABP are as follows:

  • Floating Rate: 33%–37%
  • Fixed Rate: 32%–36%
  • Inflation Linked: 27%–31%
  • Exchange Rate: 3%–7%
  • Maturity Structure: 15%–18% of debt maturing in 12 months, and average maturity of 4.2 years.

• Market Exposure and Cost of Debt

  • Public debt exposure has decreased since the last report due to higher interest rates (convexity) and the BNT's issuance strategy.
  • The cost of domestic debt is expected to fall from 9.97% in 2018 to 8.89% by July 2019.
  • The BNT's strategy of issuing less debt at current premium levels is expected to reduce long-term debt costs.

• Non-Resident Investors' Share

  • Non-resident investors increased their share of Brazilian local public debt to 12.6%, representing 32% of international reserves.
  • Inflows from non-residents amounted to BRL 20.7bn (~USD 5.5bn) in the last three months.

• Debt Composition and Maturity

  • Domestic public debt was BRL 3,608bn in July 2018.
  • The largest maturity is expected in January 2019 with BRL 133bn (~USD 32bn) of fixed-rate bonds.
  • The BNT is in a comfortable position to roll over the debt.

• Public Debt Duration and Exposure

  • Nominal rate exposure is at USD 54.3mn DV01, with monthly decay at USD 1.9mn DV01.
  • Real rate exposure is at USD 156mn DV01, with monthly decay at USD 1.0mn DV01.
  • The exposure is concentrated in specific bonds (Jan-23, Jan-25, Jan-27 for nominal; Aug-50 for real).

• Strategic Implications

  • The revised ABP gives the BNT more flexibility and supports fixed-rate market conditions.
  • The long-term goal of increasing the share of fixed-rate and inflation-linked bonds while reducing floating-rate bonds remains in place.
  • The BNT has sufficient liquidity to manage current market conditions.

Key Information

• Issuance Strategy: The BNT is issuing less debt at current premiums, which is expected to reduce long-term debt costs.
• Market Conditions: The BNT is cautious about issuing fixed-rate and inflation-linked bonds to avoid putting pressure on the cost of public debt.
• Foreign Participation: Non-resident investors are playing a growing role in Brazilian public debt, with their share increasing to 12.6%.
• Liquidity Position: The BNT has enough cash to manage the debt roll-over, indicating a stable financial position.
• Debt Maturity: Maturities are spread throughout the year, with a significant concentration in January 2019.
• Cost of Debt Projections: The average cost of domestic debt is expected to decrease from 9.97% to 8.89% by July 2019.

Conclusion

The BNT's adjustment to the 2018 Annual Borrowing Plan reflects a strategic response to market uncertainty, aiming to maintain a balanced and flexible approach to public debt management. The reduced issuance of fixed-rate and inflation-linked bonds, along with the increased share of non-resident investors, suggests a shift towards lower market exposure and more stable long-term debt costs. The report also highlights the importance of monitoring macroeconomic indicators such as inflation and the Selic rate in shaping future debt strategies.