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 (2).pdf

|FOCUS 28/06/2019 1 FOCUS|EM 28 June 2019 Brazil:Inflows from non-residents back on track KEY MESSAGES Non-residents share of Brazilian local public debt increased by 0.2%m/m in May,with total inflows amounting to BRL10.6bn(USD2.7bn),according to the Ministry of Finances latest data.In the last five months,non-residents inflows amounted to USD15.2bn.This is the first time since 2015 that we have seen inflows for five consecutive months.We estimate current public debt exposure to nominal rates to be USD64.4mn DV01.Our updated local macro fund positioning model suggests that local macro hedge funds are bullish on rates,BRL and Brazilian equities.EM STRATEGY Non-residents share of local public debt increases slightly Non-residents share of Brazilian local public debt increased by 0.2%in May and now stands at BRL476bn(USD121bn).Inflows,meanwhile,amounted to BRL10.6bn(USD2.7bn).Furthermore,non-residents share of total public debt increased to 12.7%during the month,representing 31.4%of international reserves(currently at USD386bn).BRL(bn)May-19m/m%y/y%Apr-19May-18Domestic Public Debt3,735%of Total0%5%3,723%of Total3,574%of TotalFinancial Institutions82222.0%2%3%80621.6%80022.4%Local Funds99326.6%2%3%97226.1%96326.9%Pension Funds92724.8%-3%4%95225.6%89225.0%Non-residents47612.7%2%11%46512.5%42712.0%Government Institutions1524.1%-6%-1%1624.3%1544.3%Insurance Companies1524.1%1%10%1504.0%1383.9%Others2145.7%-1%7%2165.8%2005.6%Public Debt HoldingsPublic Debt Holdings by Foreigners(%)44.4%46.1%4.1%4.8%0.7%Fixed-rate coupon bonds(NTN-F)Fixed-rate bullet bonds(LTN)Inflation-linked bonds(NTN-B)Floating-rate BondsOthers22.0%26.6%24.8%12.7%4.1%4.1%5.7%Financial InstitutionsLocal FundsPension FundsNon-residentsGovernment InstitutionsInsurance CompaniesOthers11%14%17%20%250 350 450 550Jan-15Dec-15Nov-16Oct-17Aug-18Foreigners participation in Brazilian local debt(BRL bn)Foreigners participation in Brazilian local debt(%,RHS)(20)(10)-10 20 30Jan-15Dec-15Nov-16Oct-17Aug-18Monthly Foreigners Flows(BRL,bn)Table 1 and Fig.1-4:Breakdown of public debt Sources:Bloomberg LLP,Brazils Ministry of Finance(Ministrio da Fazenda),BNP Paribas Samuel Castro,EM/Latam Strategist|Luca Maia,EM/Latam Strategist,Andre Digiacomo,EM/Latam Strategist|Banco BNP Paribas Brasil|FOCUS 28/06/2019 2 EM STRATEGY Public debt duration We estimate current public debt exposure to nominal rates to be USD64.4mn DV01 and the monthly decay to be USD2.3mn DV01(Fig.6).Nominal rate exposure is concentrated in the Jan-23,Jan-25 and Jan-27 bonds(Fig.5).Public debt exposure to real rates(inflation-linked bonds)is USD245mn DV01(Fig.7).The monthly decay for real rates is close to USD1.5mn DV01.Real rate exposure is concentrated in the Aug-50 bond,with USD79.3mn DV01(Fig.8).Figs.5-8:Public debt exposure by maturity(USD DV01,mn)Sources:Bloomberg LLP,Brazils Ministry of Finance(Ministrio da Fazenda),BNP Paribas Maturity schedule for the next 12 months The next large maturity will be in July 2019 when BRL66bn of fixed-rate bonds mature(USD17bn at current FX rate).Brazils National Treasury(BNT)appears to be in a comfortable position to roll over the debt stock in the next 12 months.Fig.9:Maturity schedule by bond type(local debt,BRL bn)Sources:Bloomberg LLP,Brazils Ministry of Finance(Ministrio da Fazenda),BNP Paribas -30 60 90 120 150Jul19Aug19Sep19Oct19Nov19Dec19Jan20Feb20Mar20Apr20May20Jun20Jul20Maturity Schedule by bond type for the next 12 months(BRL,bn)ESP.(Other)NTN-C(Inflation linked)NTN-B(Inflation linked)LFT(Floating rate)LTN/NTN-F(Fixed rate)Samuel Castro,EM/Latam Strategist|Luca Maia,EM/Latam Strategist,Andre Digiacomo,EM/Latam Strategist|Banco BNP Paribas Brasil 0.00.71.11.84.31.23.71.93.84.34.510.33.110.611.34.1036912Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-25Jan-27Jan-29Current market nominals exposure per maturity(USD DV01,mn)0.10.20.20.20.30.10.20.10.10.10.10.20.00.10.10.00.000.080.160.240.32Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-25Jan-27Jan-291 month nominals DV01 decay(USD DV01,mn)1.83.511.18.4 9.2 7.83.28.925.419.743.179.324.2019385776Aug-20May-21Aug-22May-23Aug-24Aug-26Aug-28Aug-30May-35Aug-40May-45Aug-50May-55Current market reals exposure per maturity(USD DV01,mn)0.10.10.30.20.10.10.00.10.10.10.10.10.0(0.05)0.030.110.190.27Aug-20May-21Aug-22May-23Aug-24Aug-26Aug-28Aug-30May-35Aug-40May-45Aug-50May-551 month reals DV01 decay(USDDV01,mn)|FOCUS 28/06/2019 3 EM STRATEGY Annual borrowing plan guidelines The BNT expects to maintain its long-term guidance for floating rate bonds to be replaced by fixed rate and inflation-linked instruments.In the short-term,however,it expects to increase the share of LFTs(see:Brazils annual borrowing plan further drop in share of fixed-rate bonds,dated 30 January 2019).Brazils public debt last month continued to be in line with the guidelines of the 2018 annual borrowing plan and showed a stronger profile than the 2019 guidelines.The BNT expects convergence to 2019 guidelines to take place throughout the year.The metrics outside the goals include the share of floating-rate bonds(lower than expected),the percentage of debt maturing in 12 months(lower than expected)and the average maturity(higher than expected).The larger share of floating rate bonds will likely be due to a small volume of LFTs maturing,rather than an increase in bond issuance.The average maturity(duration)of public debt previously decreased in the short-term,after reaching its peak in 2015 due to the lower share of inflation linked bonds.The BNT expects a reversal of this trend if the process of fiscal consolidation accelerates.Fig.10-15:Annual borrowing plan guidelines Sources:Bloomberg LLP,Brazils Ministry of Finance(Ministrio da Fazenda),BNP Paribas 20%25%30%35%40%45%20062008201120132016201810%17%24%31%38%45%2006200820112013201620182%5%8%11%14%17%20062008201120132016201813%18%23%28%33%38%20062008201120132016201814%18%22%26%30%34%2006200820112013201620183439444954200620082011201320162018Public Debt-FIXEDPublic Debt-Indexed to SELICPublic Debt-Indexed to FXPublic Debt-Indexed to INFLATION%of debt due in 12-monthsAverage Maturity(in months)Average cost of debt The cost of domestic debt has decreased due to low monetary policy rate and the convergence of inflation and credit risk premium to lower levels.The latest average cost(12-month cumulative)released by Brazils Ministry of Finance is 9.38%.To get a better sense of the cost of domestic public debt in the next 12 months,we used BNP Paribas economists official forecasts for IPCA inflation and the Selic rate,and our projections for USDBRL.We then factored these projections into the stock of LFTs,LTNs,NTN-Fs and NTN-Bs.The results suggest that the cost of domestic public debt is likely to fall to 8.53%in May 2020 from 9.38%currently(grey-shaded area,red bullet point in Fig.16 and Table 2).MinMaxReferenceIntervalStock of FPD(BRL bn)3,890.84,100.04,300.0-Composition(%)Fixed Rate31.329.033.040.0+/-2.0Inflation Linked26.724.028.035.0+/-2.0Floating Rate37.938.042.020.0+/-2.0Exchange Rate4.23.07.05.0+/-2.0Maturity Structure%Maturing in 12m14.017.020.020.0+/-2.0Average Maturity(in years)4.33.94.15.5+/-0.520182019 LimitsLong Term LimitsMay-19,9.38 May-20,8.53 5.5 7.5 9.5 11.5 13.5 15.5Dec-10Jun-12 Dec-13Jun-15 Dec-16Jun-18 Dec-19(%)Average Cost of Domestic Public DebtLFTLTNNTN-BNTN-FAvg.Cost of DPDFig.16 and Table 2:Average cost of domestic debt and 2019 debt limits Sources:Bloomberg LLP,Brazils Ministry of Finance(Ministrio da Fazenda),BNP Paribas Samuel Castro,EM/Latam Strategist|Luca Maia,EM/Latam Strategist,Andre Digiacomo,EM/Latam Strategist|Banco BNP Paribas Brasil -2%8%18%28%38%Aug-16Feb-17Aug-17Feb-18Aug-18Feb-19Local funds leverage indexBearish Brazilian Risk AssetsBullish Brazilian Risk AssetsTrump electedTemer TantrumPresidential election10%13%16%19%22%25%Oct-18Dec-18Jan-19Mar-19Apr-19Jun-19Local funds leverage indexBearish Brazilian Risk AssetsBullish Brazilian Risk Assets-10%-2%6%14%22%Aug-16Jan-17Jun-17Nov-17Apr-18Sep-18Feb-19Brazils DI WeightBrazils BRL WeightBrazils equity WeightForeign Assets WeightShort allocation Long allocation-4%0%4%8%12%Oct-18Dec-18Jan-19Feb-19Apr-19May-19Brazils DI WeightBrazils BRL WeightBrazils equity WeightForeign Assets WeightLong allocation Short allocation(i.e.paying rates,short BRL and short equities)ZoomZoom|FOCUS 28/06/2019 4 EM STRATEGY Samuel Castro,EM/Latam Strategist|Luca Maia,EM/Latam Strategist,Andre Digiacomo,EM/Latam Strategist|Banco BNP Paribas Brasil ANNEX:Technical positioning of local funds We updated our local macro fund positioning model,which suggests that local macro hedge funds are bullish on rates,the BRL and Brazilian equities.We saw a remarkable rebound in local macro funds receiver positions,which are now at their 2019 highs.While allocations in Brazilian risk assets had decreased since the beginning of 2019,the trend was reversed last month due several idiosyncratic and systemic factors,including:1)better prospects for the pension reform bill to be approved by the Congress;2)some activity indicators showing that the growth rebound may be postponed for a while;3)no pressure from inflation gauges;4)the central banks indication that an easing cycle may be necessary if the first three conditions remain;and,5)a meltdown of global yields.While we acknowledge that the above reasons were the main catalyst for the rally in Brazilian rates,we now see that most of the moves have already taken place.After having captured the rally in DIs since Q3 2018(during the period,we were heavily positioned in receivers via FRA Jan-20s21s,long NTN-F 2023,and FRA Jan-22s23s),we are now inclined to focus more on the shape of the curve as opposed to outright strategies.We are now allocated in DI flatteners(Jan21 vs Jan25 and Jul20 vs Jan22)as we see better risk reward prospects.From a broader perspective,the overall market position is currently short BRL,according to our Latam FX position monitor(see:BNPP-EM FX positioning-Asia,CEEMEA and Latam).To gauge the risk asset allocation of local Brazilian funds,we used optimisation tools to extract the drivers behind their average return.We chose 52 local macro funds,which together manage BRL134bn,as a way to proxy the domestic macro fund industrys performance.Fig.17-20:Technical positioning of local funds Sources:Bloomberg LLP,Brazils Ministry of Finance(Ministrio da Fazenda),BNP Paribas Legal Notice This document has been written by our Strategist and Economist teams within the BNP Paribas group of companies(collectively“BNPP”);it does not purport to be an exhaustive analysis,and may be subject to conflicts of interest resulting from their interaction with sales and trading which could affect the objectivity of this 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