Why Public Bond Rates In Brazil Have Been Affected By A Speech By Brazil’s Central Bank Director
Brazil’s public bond rates have been impacted this week following a speech from Mauricio Moura, the Director for Supervision of Relations, Citizenship and Conduct at Brazil’s Central Bank (BC). During the speech, Moura indicated that the basic interest rate, known as the Selic, would be cut in the near future, once certain conditions have been met. This led to the 2033 Treasury Default yield falling to its lowest rates since October 2021.
Impacts of the Focus Newsletter
In addition to Moura’s speech, the Focus Newsletter has also had an impact. The report showed that financial market agents predicted a drop in this year’s IPCA from 5.71% to 5.69%, and that the 2024 estimate dropped from 4.13% to 4.12%. The GDP for 2023 has had an increase in estimates, from 1.26% to 1.68%. This follows the first quarter’s 1.9% growth in the quarterly comparison, which surprised analysts.
Further Bond Rate Impacts
The annual return of the Prefixed Treasury 2033 in Direct Treasury fell from 11.34% to 11.18%, the 2026 Default Treasury rate dropped from 10.88% to 10.68%, and the 2029 Default Treasury rate decreased from 11.22% to 11.09%. The Treasury IPCA+ 2029 delivered real annual returns of 5.25%, down from 5.32% the previous Friday.
Factors for Selic Cuts
Moura listed three main factors to allow the fall of the Selic: inflation, expectations, and risks. He stated that the inflation goal was not determined by the bank itself, but rather the National Monetary Council (CMN), and compared it with sales goals in trade. Financial market agents maintained Selic forecasts at 12.5% for the end of 2023, for 2024 at 10.0%, for 2025 and 2026 at 9.0%.
Summary: Public Bond Rates Affected in Brazil Following Selic Cut Indication by Central Bank
Public bond rates in Brazil have been affected by a speech from Mauricio Moura, the Director for Supervision of Relations, Citizenship and Conduct at Brazil’s Central Bank (BC), who indicated that the basic interest rate, known as the Selic, would be cut when specific conditions have been met. This impacted 2033 Treasury Default yield to its lowest rates since October 2021. Other factors contributing to the financial condition of Brazil’s bonds include the Focus Newsletter and various bond rates. Additionally, inflation, expectations, and risks have been listed as the factors necessary for Selic cuts.
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A speech by the director of Supervision of Relations, Citizenship and Conduct of the Central Bank (BC), Mauricio Moura, had a great impact on public bond rates this Monday (5) by giving a signal to cut the basic interest rate in Brazil.
Asked about the current level of the basic interest rate, the director of the BC said that the Selic “will fall again at some point”, as soon as conditions allow it. This ruling was enough to drive the 2033 Treasury Default yield to the lowest level since October 2021.
On a day when the agenda was empty, another topic that had an impact was the Focus Newsletter. In the report, financial market agents reduced the estimate for this year’s IPCA from 5.71% to 5.69%. It was the third straight drop in projections. The estimate for 2024 dropped from 4.13% to 4.12%. The projections for 2025 and 2026 remained at the same level, 4%.
For 2023 GDP, there was an increase in estimates, from 1.26% to 1.68%. That was the fourth upward revision to GDP this year in the survey. The change comes after the disclosure of GDP for the first quarter last week, whose growth of 1.9% in the quarterly comparison surprised analysts.
In the Direct Treasury, the annual return of the Prefixed Treasury 2033 went from 11.34% in Friday’s session to 11.18% in the last update today, at 3:21 p.m. The last time the security offered a lower rate at the beginning of the session was on October 25, 2021, 1 year and 7 months ago.
The 2026 Default Treasury paid 10.68% annually, below the 10.88% observed in the previous session. The 2029 Default Treasury rate fell from 11.22% to 11.09%.
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In inflation-linked titles, the highlight was the Treasury IPCA+ 2029, which delivered real annual returns of 5.25%, against 5.32% last Friday.
Check the prices and rates of the government bonds available to buy in the Direct Treasury this Monday afternoon (5):
In a weekly direct from the Central Bank, Mauricio Moura listed three main vectors to allow the fall of the selic. The first, the current inflation lower or indicating a fall ahead. Nesse pondered that, although today the trend is downward, the economists themselves predict that it will go up a bit in the coming months and then go down again in 2024. The second, future expectations. And the third, the balance of risks.
Moura pointed out that the inflation goal is not chosen by the BC itself, but by the National Monetary Council (CMN) and even compared it with the sales goals established in the trade.
For Selic, financial market agents maintained the projection of 12.5% at the end of this year. The estimate is the same as seven weeks ago. That of 2024 was also maintained, at 10.0%, for the 16th consecutive week and that of 2025 has been at 9.0% for 16 weeks. That of 2026 remained at 9.0%.
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Instead, the estimate of the dollar in 2023 dropped from R$ 5.11 to R$ 5.10. The projection for 2024 went from BRL 5.17 to BRL 5.16, while for 2025 it remained at BRL 5.20. The forecast for 2026 continued at R$ 5.25.
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