January 27, 2023
Direct Treasury: Interest on government bonds works in a mixed fashion;  Prefix Offers Up To 10.7% Annually With Focus Reviews

Direct Treasury: Interest on government bonds works in a mixed fashion; Prefix Offers Up To 10.7% Annually With Focus Reviews

Market Radar on Monday (13) focuses on the new forecast released today in Central Bank Concentration Report. For the first time since March, financial markets have revised downward estimates of official inflation this year, which now stand at 10.5%, versus 10.18% in the previous survey.

Even with the slight improvement, financial agents’ expectations are that inflation will continue under pressure next year and end at 5.02% – the same value as last week’s forecast.

After the Monetary Policy Committee (Copom) statement which was read as more extremist (Tends to tighten monetary policy) by the market, and economists consulted by the central bank also increased their forecast for Selic increase in 2022, from 11.25% to 11.50%.

Analysts are also awaiting more information on the monetary policy behavior that BC should adopt with the release of Copom’s minutes tomorrow. In this context, government bonds traded on Tesouro Direto continued in a mixed movement on Monday afternoon. Fixed-rate papers show an increase in rates, especially in shorter periods, while most inflation-related papers fall.

For example, the advance Treasury interest for 2024 increased from 10.58% in the previous session to 10.71% annually at 3:20 pm. Earlier today, interest rates were lower: 10.57% per year. Similarly, the previous Treasury 2031 semi-annual rate yielded a yield of 10.43% per annum, slightly higher than 10.41% from the previous session.

As a result, the difference in yield between the shortest (2024) and the longest (2031) increased to 28 basis points (0.28 percentage points) at 3:20 pm. The distance between the two has widened again, having reached about 2 basis points at the beginning of this month, with the partial decision of the PEC dos Precatórios and the opinion that the central bank should not raise interest rates too much next year, a reading that was made before Cobum last Wednesday (8).

In the analysts’ view, the enactment of a portion of the PEC dos Precatórios, along with a longer-term interest rate hike and lower-than-expected inflation for November, has helped make long-term price-driven bonds drop significantly in recent days. This movement is the opposite of what happened on the shorter part of the curve, where prices rose due to Copom’s harsher tone.

Among the inflation-related papers, the only paper that showed higher interest rates was Treasury IPCA + 2026. At 3:20 pm, the real returns provided by this guarantee were 4.87% annually, compared to 4.85% in the previous session. At the same time, bonds due in 2055 and with semi-annual interest payments have provided real returns of 5.05% per annum, in line with the 5.06% recorded on Friday (10) and above 5.01%, since the start of negotiations.

Check the rates and prices of all government bonds available for purchase at Tesouro Direto presented on Monday afternoon (13):

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Source: Tesouro Direto

to focus

Within the economic docket, financial agents reflect the new revisions to the focus report released today. Although forecasts for official inflation as measured by the National Expanded Consumer Price Index (IPCA) have been lowered this year, activity will continue to show signs of weakness this year – which tend to worsen in 2022.

In the document released today, economists consulted by the Monetary Authority cut their GDP growth estimates from 4.71% to 4.65% in 2021. For 2022, the forecast is now for an expansion of 0.50% of activity. Against a previous forecast of 0.51%.

Finally, in the exchange rate, estimates for 2021 have been raised from R$5.56 to R$5.59. By the end of next year, the dollar is expected to trade at 5.55 Brazilian Real – the same forecast as last week.

PEC of Precatório, Guedes and vaccine passport

On the political agenda, investors are awaiting news on the PEC dos Precatório. The parts of the proposal that have not been agreed upon between the House and the Senate will be added to another amendment that will be discussed in the House plenary tomorrow (14).

This is because the consensual sections were published last Wednesday (8), allowing the financing of Auxílio Brasil in the amount of R$400.

Also on the political agenda, the federal government should pass a new law with rules for travelers entering Brazil, following a decision by Minister Luis Roberto Barroso, of the Federal Supreme Court (STF).

Details of this measure were discussed at a meeting held yesterday (12) in Palácio do Planalto. President Jair Bolsonaro opposes the vaccine passport used in most countries and is defended by specialists to stop the spread of the virus.

Investors are also following the statements made yesterday by Paulo Guedes, Minister of Economy, in an interview with Band TV channel Canal Live.

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At the time, the Minister of Economy said he believed in the resilience of the Brazilian economy, although he admitted it The country has problems.

“It is true that we have problems, it is true that we have an open future. The minister said that Brazil is the largest open investment front, it has carried out many important structural reforms, GDP debt is much lower than expectations, so the future is in our hands.

international scene

Meanwhile, on the outside scene, US stocks fell on Monday afternoon. At 4 pm (Brazilian time), the S&P and Dow Jones indices showed a decline of 0.68% and 0.75%, respectively. The Nasdaq shrank a little more, dropping 1.10%.

Investors are awaiting news about the conduct of monetary policy in the United States. On Wednesday (15), the US Central Bank’s Open Market Committee (FOMC, its English acronym) meets and should set the tone for withdrawing stimulus to the US economy.

In Europe, European markets are in decline with monetary policy decisions taking center stage. In addition to the US Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank are expected to make monetary policy and stimulus decisions this week.

Geopolitics remains in focus. Yesterday, the G7 foreign ministers warned Russia against reducing its activities in Ukraine or facing “serious consequences”.

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