巴黎银行-新兴市场-宏观策略-巴西：非永久居民资金流入重回正轨-20190628-9页_498kb

EM STRATEGY Summary: Brazil

Core Content

This document provides an analysis of the current state of Brazil's public debt market, focusing on the inflows from non-residents, the maturity schedule, the composition of public debt, and the positioning of local macro funds. It also includes disclosures relevant to regulatory and legal compliance, particularly for U.S. and U.K. markets.

Main Points

Non-resident Inflows

• Non-residents' share of Brazilian local public debt increased by 0.2% m/m in May, reaching BRL476bn (~USD121bn).
• Total inflows in May were BRL10.6bn (~USD2.7bn).
• Over the last five months, non-resident inflows totaled ~USD15.2bn, marking the first time since 2015 that there have been five consecutive months of inflows.
• Non-residents now hold 12.7% of total public debt, which is 31.4% of international reserves (currently at USD386bn).

Public Debt Exposure

• Nominal rate exposure is estimated at USD64.4mn DV01, with a monthly decay of USD2.3mn DV01.
• Exposure is concentrated in the Jan-23, Jan-25, and Jan-27 bonds.
• Real rate exposure is at USD245mn DV01, with a monthly decay of ~USD1.5mn DV01.
• Real rate exposure is concentrated in the Aug-50 bond, with USD79.3mn DV01.

Maturity Schedule

• The next major maturity is in July 2019, with BRL66bn (~USD17bn) of fixed-rate bonds.
• The National Treasury (BNT) is in a comfortable position to roll over the debt stock over the next 12 months.

Annual Borrowing Plan

• BNT plans to maintain its long-term guidance for using fixed-rate and inflation-linked instruments.
• In the short-term, it expects to increase the share of floating-rate bonds (LFTs).
• The current public debt profile aligns with the 2018 annual borrowing plan and shows a stronger position than the 2019 guidelines.
• The BNT expects to converge to 2019 guidelines throughout the year.
• Metrics outside the goals include:
  • Lower than expected share of floating-rate bonds.
  • Lower than expected percentage of debt maturing in 12 months.
  • Higher than expected average maturity (duration).

Average Cost of Debt

• The current average cost of domestic public debt is 9.38%.
• Projections suggest the average cost will fall to 8.53% in May 2020.
• The cost is influenced by:
  • Low monetary policy rates.
  • Convergence of inflation and credit risk premiums.
• The cost of debt is also factored using BNP Paribas economists' forecasts for IPCA inflation, Selic rate, and USD/BRL exchange rate.

Key Information

Local Macro Fund Positioning

• Local macro hedge funds are bullish on rates, BRL, and Brazilian equities.
• There has been a rebound in local macro funds' receiver positions, now at 2019 highs.
• Allocations in Brazilian risk assets had decreased since early 2019, but reverted in May due to:
  • Better prospects for pension reform bill approval.
  • Some economic indicators showing a delayed growth rebound.
  • No inflation pressure.
  • Central bank signaling a potential easing cycle.
  • A global yield meltdown.
• The funds are now focused on the yield curve shape rather than outright strategies.
• Current allocations include DI flatteners (e.g., Jan21 vs Jan25, Jul20 vs Jan22).

FX Positioning

• The overall market position is short BRL, according to the Latam FX position monitor.

Legal and Regulatory Disclosures

• This document is non-independent research and is intended for Relevant Persons as defined under MiFID II.
• It may contain "Research" as defined under MiFID II unbundling rules.
• It is not investment research and not subject to legal independence.
• BNP Paribas and its affiliates may have conflicts of interest and may engage in transactions inconsistent with the views expressed in this document.
• It is a marketing communication and not intended as a prospectus, advertisement, or public offering.
• It may contain back-tested performance data, which is illustrative and not indicative of future results.
• The document may be distributed to U.S. persons only by BNPP Securities Corp. or non-U.S. affiliates under specific conditions.
• It may include restricted securities, which are only available to Qualified Institutional Buyers (QIBs) or non-U.S. persons.

Summary Table

Conclusion

The Brazilian public debt market is showing signs of recovery and stability, with non-resident inflows returning after a long period and BNT in a strong position to manage upcoming maturities. Local macro funds are shifting their focus to curve shaping strategies, and the average cost of debt is expected to decline in the coming months. The document also highlights the bullish stance of funds on rates, BRL, and equities, while noting the systemic and idiosyncratic factors influencing this shift. Regulatory and legal disclosures are provided to ensure compliance and transparency.