Itaú BBA - Brazilian rates stand to benefit from virtuous cycle

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Brazilian rates stand to benefit from virtuous cycle

February 17, 2017

We hold a structurally bullish view on Brazilian rates even though our tools show little mispricing at current prices.

For the full report, see enclosed file

Highligths

 The Brazilian economy is moving towards a new (and improved) macroeconomic equilibrium…  

…and for this reason we hold a structurally bullish view on Brazilian rates…

…even though our valuation tools show little to no mispricing at current prices.

First and foremost, our baseline scenario for an activity recovery in Brazil this year implies a more favorable debt dynamics path.

Second, we think Brazilian duration-risk will outperform EM peers, owing to the country’s comfortable external position and the relatively small share of local debt held by foreigners.

In this month’s Box we start a research agenda on technical factors affecting the MXN. We estimate exchange rate risk premium using a methodology proposed by Banxico.

 



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