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Transcript of 5IF WJFXT FYQSFTTFE JO UIFTF QBQFST BOE QSFTFOUBUJPOT …€¦ · 5if wjfxt fyqsfttfe jo uiftf...
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WASHINGTON
Brazilian Federal Government Debt
May, 2008
Ministério da Fazenda
Brazilian Federal Government DebtBrazilian Federal Government Debt
1
Investor Base
Secondary Market
Market Perspective
Challenges Ahead
Ministério da Fazenda
R$ 481 bi41%
R$ 49 bi4%
R$ 388 bi33%
R$ 217 bi19%
R$ 36 bi3%
Domestic Debt Holders
Financial Institutions Foreign Investors Mutual Funds Pension Funds Other
Debt Holders December, 2007Debt Holders December, 2007
2
In a short period of time (less than 2 years) foreign investors became an important player in domestic debt market, helping to build liquidity to long term bonds.
Ministério da Fazenda
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
dec/03 dec/04 dec/05 dec/06 dec/07
Mutual Funds' Domestic Bonds
Floating Rate Fixed Rate Inflation Linked Other
Mutual FundsMutual Funds
3During the last few years, mutual funds have considerably diversified their portifolio
Ministério da Fazenda
120.000
140.000
160.000
180.000
200.000
220.000
240.000
260.000
280.000
300.000
apr/05 jul/05 oct/05 jan/06 apr/06 jul/06 oct/06 jan/07 apr/07 jul/07 oct/07 jan/08
R$ million
Mutual Funds
Refer. DI"floating rate"
Multimercado"multi strategy"
Mutual FundsMutual Funds
4
Multi strategy funds have gained relevance, as an evidence that investors are gradually accepting types of risks other than the floating rate.
Ministério da Fazenda
Pension Funds December,2007 Pension Funds December,2007
5
A great deal of the demand for inflation linked bonds come from Pension Funds.
Specially for long term bonds.
But, the greater part of fixed rate bonds holded by pension funds have a relatively short maturity.
less than5 yearsR$ 8.1 bi84%
longer than5 yearsR$ 1.5 bi 16%
Fixed Rate ‐ NTN‐F
less than10 yearsR$ 53.7 bi
62%
longer than10 yearsR$ 32.7 bi
38%
Inflation Linked ‐ NTN‐B
Ministério da Fazenda
38.586
27.458
56.801
‐
10.000
20.000
30.000
40.000
50.000
60.000
term < 5 y 5y < term < 10y term > 10 y
R$ million
Pension Funds' Inflation Linked Bonds
maturity
Pension Funds December,2007Pension Funds December,2007
6
Ministério da Fazenda
Private Retirement Plan Private Retirement Plan
7
R$ billion
Ministério da Fazenda
Foreign investors stance in domestic marketForeigner´s Investors: Distribution among Fixed Income instruments (R$ bn)
Foreigner´s Investors: Distribution among Fixed Income instruments (R$ bn)Foreigner´s Investors: Portfolio level (US$ bn)Foreigner´s Investors: Portfolio level (US$ bn)
Source: CVMSource: CVM
Foreigner's Investors: Domestic Debt ParticipationForeigner's Investors: Domestic Debt Participation
8Source: CVM and SELIC
R E
C E
N T
E V
E N
T S
42.6
149.1
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
Jan-
06
Feb-
06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep-
06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb-
07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep-
07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
US$
Bn
Fixed Income Equities
49.2
23.3
2.6
0
20
40
60
80
Jan-
06Fe
b-06
Mar
-06
Apr-
06M
ay-0
6Ju
n-06
Jul-0
6Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07Fe
b-07
Mar
-07
Apr-
07M
ay-0
7Ju
n-07
Jul-0
7Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
R$
Bn
Others
Mutual Funds (FIF)
National Treasury Bonds
4.96%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep-
06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep-
07
Nov
-07
Jan-
08
Ministério da Fazenda
less than5 yearsR$ 12.9 bi
56%
longer than5 yearsR$ 10.2 bi
44%
Fixed Rate ‐ NTN‐F
Foreign Investors December,2007 Foreign Investors December,2007
9
Foreign investors are more interested in long term inflation linked and long fixed rate bonds.
Foreign investors and Pension Funds are important groups of investors. They increasingly add liquidity to the market.
less than10 yearsR$ 7.9 bi 57%
longer than10 yearsR$ 5.9 bi 43%
Inflation Linked ‐ NTN‐B
Ministério da Fazenda
Brazilian Federal Government DebtBrazilian Federal Government Debt
10
Investor Base
Secondary Market
Market Perspective
Challenges Ahead
Ministério da Fazenda
Secondary Market PSecondary Market P
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fixed Linked (NTN-F) 0% 0% 0% 2% 9% 8%
Inflation Linked 4% 3% 3% 14% 17% 14%
Fixed Linked (LTN) 19% 63% 58% 54% 48% 50%
Selic Linked 77% 34% 39% 29% 26% 28%
2003 2004 2005 2006 2007 2008
Increse in NTN-B and Fixed Rate Bonds
Decrease in Floating Rate Bonds
Ministério da Fazenda
12
NTN-B Secondary MarketNTN-B Secondary Market
Source: National Treasury
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
Mill
ions
Feb'06: tax exemption.
Ministério da Fazenda
13
NTN-F Secondary MarketNTN-F Secondary Market
Source: National Treasury
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
Mill
ions
Jan'07: first issuance of NTN-F 2017.
NTN-F 2017 traded volume as % of total traded volume:
=> 12% in 2007.=> 21% in 2008.
Ministério da Fazenda
Atuação no Mercado Doméstico – Indicadores de liquidezBid-Ask Spreads in the Markets of NTN-F (fixed rate) and NTN-B (inflation linked)Bid-Ask Spreads in the Markets of NTN-F (fixed rate) and NTN-B (inflation linked)
14
• Fixed rate bonds bid-ask spreadswere significantly tightened.
•Inflation linked bonds bid-ask spreads are fairly priced, in spite of increased market volatility in 2008.
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
NTN-F jan/10 NTN-F jan/12 NTN-F jan/17
2006 2007 2008
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
NTN-B 2010 NTN-B 2015
2005 2006 2007 2008
Ministério da Fazenda
Brazilian Federal Government DebtBrazilian Federal Government Debt
15
Investor Base
Secondary Market
Investor Base and Liquidity
Challenges Ahead
Ministério da Fazenda
16
Secondary Market and Investor BaseSecondary Market and Investor Base
Pension funds, foreign investors, mutual funds and banks constitute a diversified
group of investors.
Growing interest for inflation linked and long term fixed rate bonds.
Heterogeneous objectives and perspectives regarding federal bonds trading, what,
in general, provides balanced number of buyers and sellers.
Ministério da Fazenda
17
Fixed Rate Bond Secondary MarketFixed Rate Bond Secondary Market
Source: National Treasury
DI Index Funds Banks
Banks
Foreign Investors
Multi Strategy Funds
Ministério da Fazenda
18
Inflation Linked Bond Secondary MarketInflation Linked Bond Secondary Market
Source: National Treasury
Banks
Mutual Funds
Multi Strategy Funds
Foreign Investors
Banks Foreign Investors
Pension Funds
Ministério da Fazenda
•In May 2006, following increased fears of US interest rate hikes, liquidity in the local secondary market decreased. Inflation linked notes were more negatively affected.
•Investors, specially foreign ones, tried to reduce their exposure by selling bonds. However there were not enough buyers of these assets.
•Pension funds, under investigation by authorities at that time, had limited access to the secondary market because of compliance issues. Even though bond ask prices were very attractive in the secondary market, these funds limited themselves to Treasury auctions.
•Noticing the lack of linkage between potential buyers and sellers, the National Treasury decided to conduct auctions in which it simultaneously issued and redeemed the same bonds (bid-ask auctions). As a result, after the third auction, the anxieties of sellers vanished.
19
Changes in the secondary market 2006/2007Changes in the secondary market 2006/2007
Ministério da Fazenda
National Treasury considers the foreign investor an important partner to the improvement and lengthening of the public debt's composition;
The interventions' guideline was providing prices' parameters tothe market in a very unstable scenario;
Historically, when facing strong fluctuation on market indicators, the National Treasury acts as a market stabilizer agent;
The auctions' results, in terms of amounts bought and sold, confirm that the Treasury managed to bring the market back to calm levels.
National Treasury intervenes in unstable marketNational Treasury intervenes in unstable market
The Brazilian National Treasury carried through, on may 24, 25 and 26, simultaneous auctions to buy and sell NTN-Bs:
NET ISSUANCE
Buy and Sell Auction`s SpreadsBuy and Sell Auction`s Spreads
20
24 May, 2006 25 May, 2006 26 May, 2006Treasury´s Financial
Result R$ mn Treasury´s Financial
Result R$ mn Treasury´s Financial
Result R$ mn
2006 (144.67) (144.67) 2007 (23.03) (23.03) 2008 0.67 44.44 45.10 2009 48.33 (315.42) 42.54 (224.54) 2010 (303.65) 75.34 (656.78) (885.09) 2011 207.79 (26.44) 185.62 366.97 2015 (24.20) 191.32 (256.89) (89.77) 2024 (283.93) (227.43) 19.41 (491.95) 2035 (168.44) 22.00 116.82 (29.61) 2045 (542.93) (121.88) 489.97 (174.83)
Total (1,066.35) (425.54) (159.53) (1,651.42)
Total NTN-B AuctionsNTN-B Auctions
2005 2006 1
Issuance 23.47 31.47Redemption (2.08) (4.53)Early Redemption* (8.70) (8.97)Exchange 27.28 46.23
Buy and Sell Auction - (1.65)Issuance - 2.33Early Redemption - (3.98)
Net Issuance 39.96 62.561 Until May 2006* It includes the NTN-B received as payment on the Exchange auctions
Ministério da Fazenda
In 2006 there was need for an intervention to fix the linkage between buyers and sellers of public bonds. In 2007 such an intervention was not needed, given the greater development of the secondary market.
Market was supported by the extension and diversification of the investor base. While foreign investors sold their assets in order to face losses in other countries, local pension funds and banks were able to provide fair bids. The banks that were short were specially willing to buy bonds and square their positions.
In August 2007, during the days of spiking volatility caused by the subprime crisis, the National Treasury did not intervene
NTN-B 2045 in 2006 and 2007NTN-B 2045 in 2006 and 2007
21
The National Treasury intervenes to stabilize marketsThe National Treasury intervenes to stabilize markets
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
2006 (NTNB 2045) 2007 (NTNB 2045)
Subprime Crises
National Treasury Spread Auctions:23, 24 and 25/may.
Ministério da Fazenda
Developing Regulatory Structure in Line with Debt Management ObjectivesDeveloping Regulatory Structure in Line with Debt Management Objectives
22
Federal bonds held by pension funds and investment institutions can be classified as:
I – Trading
II – Hold to Maturity
Pension funds regulator created incentives to the electronic dealing, in accordance
with National Treasury efforts to promote it.
Such assets can be also used for lending. Though, detailed regualtion is still needed.
National Treasury is working with market participants towards that.
Ministério da Fazenda
New rules for dealers:
Incentives for providing bid-ask spreads in specific intervals at market opening and close inelectronic trading systems.
Trading on Electronic PlataformsTrading on Electronic Plataforms
Ministério da Fazenda
Electronic Trading of Public BondsElectronic Trading of Public Bonds
•Real time effective prices from electronic platform are available on Bloomberg…
•Soon on Reuters
Ministério da Fazenda
•Concentration of maturities;
•Meetings with market participants such as pension funds and asset managers;
•Income tax exemption for foreign investors;
•Implementation of mechanisms that permit short selling of government bonds (under development; market currently makes use of Central Bank’s longer term repos)
•Incentives for transparency: bond price information systems and electronic trading systems.
25
Government measures to develop the secondary marketGovernment measures to develop the secondary market
Measures for the secondary market
Ministério da Fazenda
Brazilian Federal Government DebtBrazilian Federal Government Debt
26
Investor Base
Secondary Market
Market Perspective
Challenges Ahead
Ministério da Fazenda
•Market structure still strongly driven by the floating rate “heritage” (immediate
liquidity perspective)
•Market potential
• Market size
• Heterogeneous perspectives of investors already existent
• Balanced composition of portfolios still to be reached
• Economic stability
27
Challenges AheadChallenges Ahead