September 28, 2023
Direct Treasury: advance interest rates hit a new record after measures to cut fuel prices

Direct Treasury: advance interest rates hit a new record after measures to cut fuel prices

General bond prices showed upward movement on Tuesday afternoon (7). In fixed rate securities, you offer the yield that bonds offer up to 24 basis points. In inflation-linked bonds, interest rates rose by as much as 5 basis points.

According to Luciano Costa, an economist and partner at Monte Bravo Investimentos, prices have risen due to domestic factors, especially financial risks.

He explained that the market’s reaction was negative to the government’s announcement yesterday regarding measures to compensate for the rise in fuel prices. He estimates that “the market places financial deterioration as the main risk of these measures.”

Costa says that accepting federal taxes in the price of gasoline should result in a collection loss of R$16 billion in exchange for a 0.7% drop in inflation, but with a deterioration in public finances. The government was also to announce a rule to offset lost revenue from states with diesel fuel and gas from the kitchen.

“Now you have a government that is willing to cover about R$22 billion in impact. Added to the smaller impacts of ethanol and other tax cuts, the final impact would be R$40 billion for the union — with these exemptions and coverage for the negative impact of states,” Costa explains.

From the economist’s point of view, the market has many doubts about this situation. “We don’t know if the government may eventually have to commit to more than it expects,” he estimates.

Costa highlights that a vote on the ICMS tax is still pending in the Senate and that it is unclear whether the compensation should take place before or after the bill is approved.

In a report sent to clients, Jason Vieira, chief economist at Infinity Asset, emphasized that the short-term inflationary impact of such projects was “undeniable”. “However, the financial cost of the Treasury results will certainly put more pressure on interest rates,” he defended.

In his analysis, the House’s chief economist said the compensation announced by Bolsonaro was done without an alternative source, as required by law, and that the government has shown it is looking at unconventional alternatives to lower fuel prices.

Within direct treasury, medium-term fixed rate securities had the highest rate increase. The flat-rate Treasury 2029 at 15:33 offered an annualized return of 12.80%, up from 12.56% on Monday.

On the other hand, the fixed-rate Treasury 2033, at semi-annual interest, offered an annualized return of 12.92% in today’s last update, up from 12.70% recorded yesterday.

Both titles set new records. These started trading in February of this year.

The previous Treasury 2025 had an annualized return of 12.73%, up from 12.57% yesterday.

In inflation-linked bonds, the largest increase was in Treasury IPCA + 2026 prices. General bonds offered a real gain of 5.54%, up from 5.49% in the previous session.

The other bonds showed an increase in rates ranging between 3 and 4 basis points.

Check prices and quotes for all public securities available for purchase from Treasury Direct on Tuesday afternoon (7):

Source: Direct Treasure

ICMS and salary adjustment

On the political front, investors are echoing President Jair Bolsonaro (PL)’s announcement yesterday. Measures to reduce fuel prices will now be directed at Form of the proposed amendment to the Constitution (PEC) A legislative proposal with more complex handling in Parliament.

These were the motions put forward today to the presidents of both houses, and you will bring them to the House and Senate. He said that if there is an understanding on the part of senators on passing the supplementary bill and in passing an amendment to the Constitution very quickly, that will take effect immediately at the end of the line for consumers.

Equipped as the Provisional Elections Committees, the measures will need the approval of 3/5 of the House of Representatives (ie 308 out of 513 members) and a similar quorum among the Senate (49 of 81), in two rounds of voting in each legislative session. a house. Only then can it be issued by the National Congress. Parliamentarians can amend the text without the possibility of a presidential veto.

Practically speaking, the proposal should pave the way in current fiscal rules to allow the resources needed for such compensation to be outside the spending ceiling – a rule that limits a large portion of public spending from being pushed into inflation.

In addition to fuel, another topic that remains on the agenda is readjustment to the civil service. However, President of the National Permanent Forum on Model Government Jobs (Fonacate), Rodini Márquez, stated that the Jair Bolsonaro (PL) government’s decision to “push” the definition of readjustment of federal employees indicates that The executive branch has already decided not to promote civil servants this year.

The Ministry of Economy informed yesterday (6) that it will use the reserve of 1.7 billion Rls in the budget allocated for the readjustment to reduce the size of the emergency needed to meet the spending ceiling this year (the government needs to freeze R$8702 billion, but with the use of the reserve, the effective mass reached 6.965 billion Brazilian reals).

Attention expectations

The proposals announced by the government on Monday (6) to try to cut fuel prices and inflation this year may put more pressure on interest rates and force the central bank to postpone the cycle of cuts in the base rate (Celec) in 2023. This is the evaluation conducted by the experts they consulted Infomoney.

President Jair Bolsonaro (PL) announced that the government will present a proposed amendment to the Constitution (PEC) that would Rewards Countries that accept zero ICMS on diesel and cooking gas. The measure, which is valid until December 2022, will be subject to approval Senate on supplementary bill 18/2022which the chamber approved two weeks ago and places a 17% cap on ICMS on fuel and electricity, among other items.

For managers and economists, the Public Electricity Corporation will have a high financial cost, as it will be very difficult for a new government official to be able to reverse the benefits next year. To lower inflation in 2022, it will also end up putting pressure on inflation in 2023.

see also:

Fuel price cuts may force British Columbia to delay silicon reduction

If PEC and PLP 18 are approved, the effect may be up to 230 basis points [2,30 ponto percentual] swell this year. But next year, 90 basis points [0,90 ponto percentual] Giuliano Ferreira, chief strategist at BGC Liquidez says: Calculations are preliminary and include the government’s intention to eliminate federal taxes (PIS/Cofins and Cide) on ethanol and gasoline this year, as announced yesterday.