Jose Franco Public Debt Undersecretary Brazilian National Treasury - - PowerPoint PPT Presentation

June 2016

Jose Franco

Public Debt Undersecretary Brazilian National Treasury

Current Structure - DMO

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Brazilian National Treasury ... Public Debt Front Office Middle Office Back Office ... ... ...

Domestic and External Trade Desk ST Strategy Auctions & Guarantees IR Office Economic Scenario Risk Management Research Statistics Payment and Control Direct Issuances Budget Monitoring

 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;

 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.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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

Fixed Rate Inflation Linked Floating rate Exchange Rate

Improving Public Debt Structure – Composition and Maturity Profile

Source: National Treasury. Note: Federal Public Debt. which includes both domestic and external liabilities.

26.8% 73.2% 31.0% 69.0%

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Debt Management

Domestic Federal Public Debt (DFPD) - Holders

» The share of Non Residents in Domestic Federal Public Debt has been kept stable.

Source: National Treasury (Apr/2016) Note: “Pension Funds” includes both open and closed pension funds. “Government” comprises funds that are managed by the public sector. including those whose assets are not public.

» This is the result of a strategy adopted by the National Treasury aimed at diversifying the investor base.

Source: National Treasury 17.39% 1% 6% 11% 16% 21% 26% 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

IOF: 1.5% tax on incoming foreign investment (Mar/08) IOF: 6.0% tax on incoming foreign investment (Oct/10) IOF : 2.0% tax on incoming foreign investment (Oct/09) IOF: 0% tax on incoming foreign investment (Oct/08) IOF: 0% tax on incoming foreign investment (Jun/13)

Financial Institutions 21.9% Mutual Funds 20.9% Pension Funds 24.1% Non- residents 17.4% Government 5.9% Insurance 4.7% Others 5.1%

Debt Management Holders (Apr -16) Share of Non-Residents

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Debt Management

28% 30% 56% 12% 67% 44% 40% 15% 20% 86% 33% 26% 30% 56% 25% 2% 31%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Financial Institutions Mutual Funds Pension Non-residents Government Insurance Inflation Linked Fixed Rate Floating Rate Others

19% 9% 6% 36% 21% 9% 39% 32% 16% 22% 28% 22% 18% 25% 25% 23% 21% 26% 25% 34% 53% 19% 31% 42%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Financial Institutions Mutual Funds Pension Non-residents Government Insurance Up to 1 Year From 1 to 3 Years From 3 to 5 Years After 5 Years

Domestic Federal Public Debt (DFPD) - Holders

Source: National Treasury

» As regards the debt by type, 40% of bank holdings are fixed rate bonds, while 56% of Mutual Fund’s portfolio is in floating rate bonds. Inflation-linked bonds are 56% of Pension Fund holdings. » Regarding maturities, Pension Fund portfolio’s have longest duration.

Source: National Treasury

Debt Management By Security Type (Apr -16) By Maturity (Apr -16)

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Debt Management

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). 6

Cash flow management Short term strategy Auctions Risk management Monitoring indicators Benchmark Medium-term strategy External Market Domestic Market

Undersecretary of Debt

General Coordinator

• f CODIV

General Coordinator

• f COGEP

Debt Committee Technical Staff

Until 30/Oct. Until 30/Oct. Until 30/Dec.

COGED

Benchmark Mediun-term strategy ABP Until 30/Apr. And until 31/Aug. ABP revaluation

National Treasury Secretary

» The directive also provides coordination between debt management and fiscal management, setting the interaction between the COGED and Fiscal Policy Committee - COPOF, newly introduced.

General Coordinator

• f CODIP

National Treasury Directive – Reports Description

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ABP - Annual Borrowing Plan

Until January 31 of the reference year

ADR - Annual Debt Report

Until January 31 of the year following the reference

MDR - Monthly Debt Report

Until the last business day of the month following the reference

Annual Securities Auction Schedule

Until December 31 of the previous year following the reported 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. It presents accountability of the FPD evolution over the year based on the reference limits set out in the Annual Borrowing Plan. It presents the monthly monitoring of the FPD and its indicators. 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

National Treasury Directive – IRO Activities

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 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

National Treasury Directive – IRO Activities

9  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.

Lessons Learned

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 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

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

• ntact In

Instit itutional l Rela lations ar area: : brazild ldebt@fazenda.gov.br