Jose Franco Public Debt Undersecretary Brazilian National Treasury June 2016
Current Structure - DMO The IR Office was officially created at 1999, but the main attributions as currently defined were set at 2001, in the context of the new public debt management model; Brazilian National Treasury ... ... ... ... Public Debt Front Office Middle Office Back Office Domestic and External IR Office Statistics Trade Desk Economic Scenario Payment and ST Strategy Risk Management Control Auctions & Guarantees Research Direct Issuances Budget Monitoring Maintain and improve relationship with investors and opinion makers`- Investors community in general; Broaden the investor base; Provide uniformity and publicity on the information about debt management; Management of Tesouro Direto Program. 2
Debt Management Improving Public Debt Structure – Composition and Maturity Profile 100% 31.0% 73.2% Exchange Rate 90% 80% 70% Floating rate 60% 50% Inflation Linked 40% 69.0% 30% 26.8% 20% Fixed Rate 10% 0% Jan/05 Jul/05 Jan/06 Jul/06 Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10 Jan/11 Jul/11 Jan/12 Jul/12 Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15 Jan/16 Fixed Rate Inflation Linked Floating Rate Exchange Rate Source: National Treasury. Note: Federal Public Debt. which includes both domestic and external liabilities. 3
Debt Management Debt Management Domestic Federal Public Debt (DFPD) - Holders Holders (Apr -16) » This is the result of a strategy adopted by the Others Insurance National Treasury aimed at diversifying the investor 5.1% Government 4.7% base. Financial 5.9% Institutions 21.9% Non- Share of Non-Residents Mutual residents Funds 17.4% 20.9% 26% Pension Funds 21% 24.1% IOF : 6.0 % tax on 17.39% incoming foreign investment 16% IOF : 0 % tax on (Oct/10) incoming foreign investment (Oct/08) IOF : 0 % tax on 11% incoming foreign investment (Jun/13) Source: National Treasury (Apr/2016) 6% Note: “Pension Funds” includes both open and closed pension funds. “Government” comprises IOF : 2.0 % tax on IOF : 1.5 % tax on funds that are managed by the public sector. including those whose assets are not public. incoming foreign incoming foreign investment (Oct/09) investment (Mar/08) 1% Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 » The share of Non Residents in Domestic Federal Public Debt has been kept stable. Source: National Treasury 4
Debt Management Debt Management Domestic Federal Public Debt (DFPD) - Holders » As regards the debt by type, 40% of bank By Security Type (Apr -16) holdings are fixed rate bonds, while 56% of Mutual Fund’s portfolio is in floating rate bonds. 100% 2% Inflation-linked bonds are 56% of Pension Fund 90% 25% 31% 33% 30% holdings. 80% 56% 70% 20% 60% By Maturity (Apr -16) 26% 86% 50% 40% 40% 15% 67% 100% 30% 56% 19% 90% 44% 20% 25% 31% 34% 30% 28% 80% 42% 10% 12% 53% 70% 23% 0% 18% Financial Mutual Funds Pension Non-residents Government Insurance 60% 21% Institutions Inflation Linked Fixed Rate Floating Rate Others 25% 50% 22% 26% Source: National Treasury 40% 39% 25% 28% 30% 32% 22% 20% » Regarding maturities, Pension Fund portfolio’s 36% 16% 10% 21% 19% have longest duration. 9% 9% 6% 0% Financial Mutual Funds Pension Non-residents Government Insurance Institutions Up to 1 Year From 1 to 3 Years From 3 to 5 Years After 5 Years Source: National Treasury 5
National Treasury Directive number 29, dated 01/21/2016 » The National Treasury Directive number 29, dated 01/21/2016, defines the Federal Public Debt (FPD) Management objective, sets the reports to be published regularly and establishes the Federal Public Debt Management Committee (COGED). Cash flow management Domestic Short term Market strategy COGED Debt Committee Benchmark Until 30/Oct. External Mediun-term Undersecretary of Debt Auctions Until 30/Oct. National Treasury strategy Market Secretary General General General ABP Until 30/Dec. Coordinator Coordinator Coordinator of CODIP of CODIV of COGEP Until 30/Apr. ABP revaluation And until Technical Medium-term Risk 31/Aug. Staff strategy management Monitoring Benchmark indicators » The directive also provides coordination between debt management and fiscal management, setting the interaction between the COGED and Fiscal Policy Committee - COPOF, newly introduced. 6
National Treasury Directive – Reports Description ABP - Annual Borrowing Plan Until January 31 of the reference year It presents the objectives and guidelines, the market strategy for internal and external Federal Public Debt (FPD) and reference limits for the main debt indicators at the end of the year. Until January 31 of the year following the reference ADR - Annual Debt Report It presents accountability of the FPD evolution over the year based on the reference limits set out in the Annual Borrowing Plan. MDR - Monthly Debt Report Until the last business day of the month following the reference It presents the monthly monitoring of the FPD and its indicators. Until December 31 of the previous year following the reported Annual Securities Auction Schedule It presents at least auction dates, types of auctions to be held on each date, the securities to be offered in each auction and the maturity dates of these securities. Other types of reports may be created if it’s on the community behalf 7
National Treasury Directive – IRO Activities Short-term courses for Journalists Attempt to provide homogeneity in their understandings on basic concepts Proactive behavior, flexibility Foreign Investors Handout Public Bonds Pricing Methodology IRO identified this demand and trade desk elaborated it Operations in the international market Detailed reports on every operation after clearance – Disclosure Presentations Website management “Tesouro Transparente ” Tesouro Direto – Retail Sales Program Monthly Reports and press releases 8
National Treasury Directive – IRO Activities International Institute of Finance Assessment of 30 key borrowing countries in Investor Relations and Data Transparency Practices. Measures: Staff reachable through website Reciprocal links between government agencies Investors able to register for website subscription Investor conference call Regular self-assessment of investor relations activities. 9
Lessons Learned Transparency is an important value for itself Key element for DMOs which finance debt through market instruments But also important for contractual debt Organizational structure may vary – customized to the local environment In Brazil Active behavior towards the main stakeholders Market participants – regular meetings with the investors’ community – discuss topics related to the economic agenda Credit rating agencies Press Not necessarily bounded to debt management Basically any topic related to debt management may be addressed State-owned companies, Local Gov’t, Fiscal policy During Crisis: It’s vital to coordinate with front-office what are the main topics to be tackled and react Important to channel all the information created in the DMO throughout the market Reduce informational asymmetries 10
For ad additional l in information ac access th the Na National l Treasury websit ite: www.tesouro.fazenda.g .gov.br Or r con ontact In Instit itutional l Rela lations ar area: : brazild ldebt@fazenda.gov.br
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