巴黎银行-新兴市场-宏观策略-巴西：地方公共债务中的非居民所占份额进一步增加-20190328-10页_1mb

Summary of Document: Brazil - Public Debt and Local Fund Positioning (February 2019)

Core Content Overview

This document provides an analysis of Brazil's public debt structure and local macro fund positioning as of February 2019. It outlines the current composition of public debt, the implications of non-resident holdings, and the expectations for future debt issuance and management. Additionally, it discusses the cost of debt and the technical positioning of local funds in Brazilian assets.

Key Messages

• Non-residents' share of local public debt increased by 5% m/m to 12.2%, reaching BRL455bn (~USD121bn).
• Inflows from non-residents amounted to BRL21.5bn (~USD5.7bn).
• Non-residents' holdings represent 32% of Brazil's international reserves, currently at USD378bn.
• Public debt exposure to nominal rates is USD60mn DV01, with a monthly decay of USD1.8mn DV01.
• Public debt exposure to real rates is USD220mn DV01, with minimal monthly decay due to high convexity.
• The next large maturity of public debt is in April 2019, with BRL120bn (~USD31bn) of fixed-rate bonds maturing.
• Brazil's National Treasury (BNT) is in a comfortable position to roll over debt in the next 12 months.
• The average cost of domestic public debt is currently 9.32%, expected to decrease to 8.99% by February 2020.
• Local macro hedge funds remain bullish on Brazilian assets, with a neutral stance on the BRL.
• Local funds have reduced long BRL positions, and the overall market position in BRL is currently short.

Public Debt Composition

Public Debt Duration and Exposure

• Nominal rate exposure: USD60mn DV01, with a monthly decay of USD1.8mn DV01.
• Real rate exposure: USD220mn DV01, with minimal monthly decay due to high convexity.
• Concentration of exposure:
  • Nominal rates: Jan-23, Jan-25, and Jan-27 bonds.
  • Real rates: Aug-50 bond with USD64.4mn DV01.

Maturity Schedule for the Next 12 Months

• The next major maturity is in April 2019 with BRL120bn (~USD31bn) of fixed-rate bonds.
• The BNT is in a comfortable position to roll over the debt stock in the next 12 months.

Annual Borrowing Plan Guidelines

• The BNT plans to increase the share of LFTs (long-term fixed-rate bonds) in the short term.
• Brazil's public debt continued to align with 2018 guidelines and showed a stronger profile than the 2019 guidelines.
• The BNT expects convergence to 2019 guidelines throughout the year.
• Metrics outside the goals:
  • Lower than expected share of floating-rate bonds.
  • Lower than expected percentage of debt maturing in 12 months.
  • Higher than expected average maturity (duration).
• The reduction in floating rate bonds is due to a small volume of LFTs maturing, not an increase in issuance.
• The average maturity of public debt previously decreased after reaching a peak in 2015 due to a lower share of inflation-linked bonds. The BNT expects a reversal of this trend if fiscal consolidation accelerates.

Average Cost of Debt

• The current average cost of domestic public debt is 9.32% (12-month cumulative).
• Based on BNP Paribas economists' forecasts, the average cost is expected to fall to 8.99% by February 2020.
• This decrease is attributed to:
  1. Low monetary policy rate.
  2. Convergence of inflation and credit risk premium to lower levels.

Local Funds' Technical Positioning

• Local macro hedge funds remain bullish on all Brazilian assets.
• Allocations in Brazilian risk assets peaked at the end of December 2018 and remain near that level.
• Leverage index for local funds has remained stable in Q1 2019.
• DI receiver positions have increased, offsetting the decrease in long equity and long BRL positions.
• The BRL position is close to neutral, with consistent reductions in long BRL positions since February.
• Overall market position in BRL is short, as per the Latam FX position monitor.

Disclaimer and Legal Information

• This document is a marketing communication and not independent research.
• It is not investment research for the purposes of MiFID II.
• It is not intended for retail investors and is only for Relevant Persons as defined under applicable regulations.
• No liability is accepted for any use of or reliance on the information contained in this document.
• The information may be subject to change and is not guaranteed to be accurate or complete.
• BNP Paribas may have conflicts of interest and may engage in transactions inconsistent with the views expressed in this document.
• Performance data may include back-testing and is not indicative of future results.
• ETFs and options discussed are subject to specific disclosures and may not be available to all investors.
• The document is confidential and may not be distributed without prior written consent.