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BRAZIL: Swaps Curve Bull-Flattens, Income Tax Reform, Copom Meeting Next Week

BRAZIL
BulletEM BulletEmerging Market News
  • While front-end DI swap rates remain anchored ahead of next Wednesday’s expected 100bp Selic rate hike, longer-end yields have continued to rally today, falling a further 10bp for a total weekly decline of 20-25bp.
  • The move comes as officials meet with US government representatives today to discuss the 25% tariffs imposed by President Trump on steel and aluminium imports. It also comes as the import tax exemption for food products begin today in an effort to contain food prices.
  • Comments from President Lula, whose popularity has suffered amid high inflation pressures, have recently crossed the wires, saying he wants a solution for food prices. He has also confirmed that the government will present its income tax reform on March 18. To recap, the plan is to exempt salaries of up to 5,000 reais from income taxes, benefitting millions of low-income workers.
  • Earlier, latest fiscal data came in line with consensus, showing the expected primary surplus in January. However, with Congress set to finally vote on the 2025 budget next week, JP Morgan expects discussions on 2025 and beyond to heat up, bringing back headline-based volatility.
  • Meanwhile, against a softening growth backdrop, SocGen expects the swap curve (DI27-33) to move sideways, with a steepening bias, as the market adjusts to softer rate hikes in Q2, to around 15%, before rate cuts begin in the second half of 2025.
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  • While front-end DI swap rates remain anchored ahead of next Wednesday’s expected 100bp Selic rate hike, longer-end yields have continued to rally today, falling a further 10bp for a total weekly decline of 20-25bp.
  • The move comes as officials meet with US government representatives today to discuss the 25% tariffs imposed by President Trump on steel and aluminium imports. It also comes as the import tax exemption for food products begin today in an effort to contain food prices.
  • Comments from President Lula, whose popularity has suffered amid high inflation pressures, have recently crossed the wires, saying he wants a solution for food prices. He has also confirmed that the government will present its income tax reform on March 18. To recap, the plan is to exempt salaries of up to 5,000 reais from income taxes, benefitting millions of low-income workers.
  • Earlier, latest fiscal data came in line with consensus, showing the expected primary surplus in January. However, with Congress set to finally vote on the 2025 budget next week, JP Morgan expects discussions on 2025 and beyond to heat up, bringing back headline-based volatility.
  • Meanwhile, against a softening growth backdrop, SocGen expects the swap curve (DI27-33) to move sideways, with a steepening bias, as the market adjusts to softer rate hikes in Q2, to around 15%, before rate cuts begin in the second half of 2025.