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Snapshot: BRL Reverses As Swap Rates Extend Gains

BRAZIL
  • USDBRL has had a very strong turnaround from the lows. Initially, the Real strengthened on the back of the full percentage point rate increase by the BCB overnight.
  • Since printing 5.1107, the retracement has been gradual and consistent, extending gains through yesterdays close of 5.1689 and making new highs as of writing above 5.22 which marks a greater than 2% reversal.
  • Domestic fiscal concerns continue to linger as analysts await confirmation of Bolsonaro's attempts to increase Bolsa Familia.
  • One way traffic for Di swap rates, with a perfect storm of the acceleration of hawkish copom signals eventual currency weakness and higher US yields. Contracts expiring in Jan-22 have risen 15 basis points, whereas the entirety of the curve further out has shifted between 30-32 basis points higher.
  • Brazil DI Swaps:
    • Jan-22 DI +15 bps at 6.50%
    • Jan-23 DI +32 bps at 8.12%
    • 5-yr +31 bps at 9.25%
    • 10-yr +33 bps at 9.82%
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