20180126-法国巴黎银行-LATIN_AMERICA_STRATEGY_BRAZIL_S_ANNUAL_BORROWING_PLAN_A_BETTER_SCENARIO_FOR_2018_14页_346kb

Summary of Brazil's 2018 Annual Borrowing Plan and Debt Strategy

Core Content

Brazil's National Treasury (BNT) has outlined its annual financing programme for 2018, estimating net borrowing requirements at BRL 637.5bn (USD 203bn), a 3% decrease from the previous year. The document is produced by BNP Paribas Brasil S.A. and authored by key contacts in the FX & IR Latam Strategy team, including Gabriel Gersztein, Gustavo Mendonca, and Samuel Castro.

Main Points

1. Borrowing Requirements

• Net borrowing requirements for 2018 are BRL 637.5bn (USD 203bn), down by 3% compared to the previous year.
• The breakdown includes:
  • External debt: BRL 9.5bn (USD 3.0bn or 0.1% of GDP)
  • Internal debt: BRL 617.3bn
  • Central Bank holdings: BRL 83.9bn (maturing in 2018)
• The BNT expects to cover a budget deficit of BRL 112.9bn using BRL 186.1bn in budget resources, including BRL 130bn from BNDES and BRL 56.1bn from other sources.

2. Debt Structure and Maturities

• Maturities are evenly spread throughout the year.
• Fixed rate bonds account for 58% of the local debt maturing in 2018.
• The long-term strategy is to replace floating rate bonds (currently 31.5% of total public debt) with fixed rate and inflation-linked instruments.
• In the short term, the BNT plans to increase the share of LFTs (long-term fixed rate bonds).
• The BNT has adjusted the 2018 limits for:
  • Floating rate securities: 31–35%
  • Inflation-linked bonds: 27–31%
• The average maturity of public debt is expected to decrease in the short term, following a peak in 2015.

3. Cost of Domestic Debt

• The cost of domestic debt has decreased due to:
  • The easing monetary cycle since October 2016
  • Convergence of inflation and credit risk premiums
• The BNT projects that the average cost of domestic public debt will fall to 9.38% by December 2018 from the current 10.34%.

4. 2018 Debt Auctions Calendar

• The BNT has released the 2018 auctions calendar for local government bonds.
• Key bonds include:
  • LTN (short and medium-term): Oct-18, Apr-19, Apr-20, Jan-22, etc.
  • NTN-F (long-term): Jan-25, Jan-29
  • NTN-B (short and medium-term, long-term): Aug-23, Aug-28, May-35, May-55
  • LFT (floating rate): Mar-24, Sep-24
• The frequency of NTN-F auctions has been increased to weekly, providing more flexibility without increasing the total volume.
• The Treasury will stop quarterly repurchase auctions of NTN-F and NTN-B, adopting a more discretionary approach.

5. Debt Metrics and Definitions

• The document explains the difference between:
  • Federal Public Debt (FPD): 96.5% of total federal public debt
  • General Government Gross Debt (GGGD): Includes FPD, state and municipal debt, and BCB repo facilities
  • Public Sector Net Debt (PSND): GGGD minus public sector assets
• The central bank's repo facilities account for 25% of GGGD, which is unusual by international standards.
• The average maturity of the total debt is 4.4 years, but this drops significantly when including the short-term repo facilities.

6. Economic Outlook

• The BNT expects a benign external scenario in 2018 with:
  • Moderate US economic recovery and gradual increase in the federal fund rate
  • Good growth prospects in Europe with low inflation
  • Moderate slowdown in China, without a hard-landing
• The BNT also anticipates accelerated economic recovery in Brazil, with:
  • Benign inflation
  • Increased real wages
  • Lower family indebtedness
  • Improved confidence and expansionary monetary policy

Key Information

• The BNT holds six months of debt service in liquidity reserves, providing flexibility in adverse market conditions.
• The goal is to refinance debt at least 100% to avoid adding liquidity to the financial system.
• The use of inflation-linked instruments is part of the long-term strategy to stabilize the debt structure.
• The BNT plans to smooth the maturity structure, with a focus on short-term debt.
• The document includes charts and tables to illustrate debt dynamics, maturity schedules, and cost projections.

Legal and Compliance Notes

• This is non-independent research and is considered a marketing communication under MiFID II.
• It is intended for professional clients and relevant persons only.
• No investment advice is provided, and the document does not constitute an offer to sell or issue securities.
• The information is subject to change and is based on public sources and internal models.
• Confidentiality is emphasized, and the document is not to be copied or distributed without prior consent.
• Options and ETFs mentioned in the document are subject to risk disclosures, and are only suitable for sophisticated investors.

Contacts

Important Disclaimer

• This document is not investment research and is not subject to independence requirements.
• No guarantee is given regarding the accuracy or completeness of the information.
• No liability is accepted for any losses arising from the use of the document.
• Performance data is hypothetical and not indicative of future results.
• Simulations are based on estimates and assumptions and may differ from actual outcomes.