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Volatility In BRL, Local Swaps continues

BRAZIL
  • Optimism surrounding reforms and the desire to keep any additional emergency spending within the fiscal cap framework is fading. The Real has weakened 1.5% against both the USD and MXN, with USDBRL once again approaching the key resistance band 5.50-5.53.
  • Yesterday's BRL gains were trimmed after Senate President Pacheco said a fresh round of emergency aid payments is urgent and doesn't need to be linked to any bill aimed at cutting govt's spending as Economy Minister Paulo Guedes wanted. Similar price action has continued today, aided by the start of the budget joint committee being postponed.
  • Bear steepening with the front end of the swaps curve largely unchanged. This is more than likely because of the slightly lower than expected IPCA inflation readings this morning, having a marginal effect on whether the central bank may immediately start hiking. The belly and the long-end however, have been under the most pressure with yields rising between 10-13 basis points. Di contracts expiring in 2031 are once again approaching yields of 8%, currently 7.93%.
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