Treasury Direct: Treasury Bond Rates Continue to Fall; area codes offer interest up to 12.77%

Domestic and external news is on the market’s radar this Tuesday (10). Despite the violent coups this Sunday (8), in Brasilia, the government is making an effort to keep up with the routine.

President Luiz Inácio Lula da Silva (PT) previously met with Fernando Haddad (PT), Minister of Finance. The meeting focuses on the announcement of the first wave of economic measures, which should take place this week.

Another priority today is inflation data. The Extended National Consumer Price Index (IPCA) rose 0.62% in December, well above Refinitiv consensus expectations. The indicator closed 2022 at 5.79%, a result even higher than expected (5.60%).

Investors are also following the measures taken by the government after last Sunday’s anti-democratic acts (8). The House and Senate have already approved federal intervention in the security of the Federal District.

On the external scene, the expected intervention by Federal Reserve (Fed, US central bank) chairman Jerome Powell did not provide many clues about the next steps in US monetary policy.

Powell said only that “restoring price stability when inflation is high may require measures that are not popular in the short term.”

In Direct Treasury, government bonds posted a decline in yields on Tuesday, a move seen since the morning. As of 15:25, prefixed bonds were offering interest rates of up to 12.77%, in the case of the 2029 Prefixed Treasury. Yesterday (9), the same bond offered a rate of 12.91%. The highest real remuneration was disbursed by the IPCA+2045 Treasury, at 6.31%, below the 6.34% recorded the day before.

“Today we see that all rates are going down, especially in the interest rate futures market. The market has already digested the events in Brasilia very well. The Ibovespa is very close to its high and the dollar is falling by almost 1%”, says Thiago Calestine, economist and partner at DOM Investimentos.

Paulo Ricardo, fixed income specialist at Blue3, draws attention to the international scene. For him, what can influence more is China, which is showing optimism to the market with the reopening of the economy and the easing of the covid-19 policy.

He also quotes Powell’s speech. “The Fed chair talks about the end of the rate hike cycle, but notes that there could be another hike of 0.5 percentage point or 0.25 percentage point.”

Consult the prices and rates of government bonds available for purchase at the Direct Treasury on Tuesday afternoon (10):

Source: direct treasury

HICP

The highlight of the local economic scene is the HICP, which rose 0.62% in December and closed the year at a high of 5.79%, the Brazilian Institute of Geography and statistics (IBGE).

Inflation has exceeded the target set by the National Monetary Council (CMN). The target for the HICP was 3.5%, with a tolerance range of 1.5 percentage points.

The monthly high and annualized rate exceeded market expectations by 0.44% and 5.60% respectively according to Refinitiv’s consensus.

All nine product and service groups reviewed by the IBGE were discharged in December.

The largest change in the month (1.60%) and the largest impact (0.21 percentage points) came from Health & Personal Care, which accelerated from its November result (0.02%). The second largest contributor, at 0.14 points, came from Food and Beverage, up 0.66%. Together, the two groups accounted for around 56% of the total impact of December’s HICP.

In the 2022 cumulative result, the 5.79% result was primarily impacted by the Food & Beverage group (11.64%), which had the largest impact (2.41 pp) over the period. Health and personal care follow, with a change of 11.43% and an impact of 1.42 percentage points.

Commenting on the numbers, XP’s macroeconomics team points out that average core inflation for the month of December was higher than expected, closing at 0.66% in the house’s calculations, versus 0.46% expected by the XP team. ‘brokerage. The pressure on cores could prompt further postponements of the start of the rate-cutting cycle, according to some analysts’ assessment.

Others, such as Suno Research chief economist Gustavo Sung, argue that the inflationary scenario turned out to be more favorable than expected in 2022 and, if there are no big surprises, the monetary authority should follow the current escape plan.

For Sung, only if the scenario actually deteriorates can inflation expectations start to rise significantly and the central bank may need to take a more timely stance.

Haddad and the minimum wage

Meanwhile, on the political scene, Finance Minister Fernando Haddad (PT) intends to maintain the original program and announce the first economic measures this week, despite the political impact of the coups that led to the looting of the headquarters of the three Powers, in Brasilia, according to the Folha de São Paulo.

Haddad discussed the issue with the Chief of Staff last Monday (9) and, according to interlocutors, the position was validated by President Luiz Inácio Lula da Silva (PT).

Another topic that’s on the radar is the minimum wage. The government can wait until May to announce the readjustment of the minimum wage to R$1,320. The provision is under discussion and is being defended by the economic area, according to the newspaper’s investigation. Stage.

Lula has promised that he would increase the amount of the benefit, but has not yet drafted a Provisional Provision (MP) formalizing the new minimum level and has not even sanctioned the 2023 Budget. by former President Jair Bolsonaro (PL) in December of last year. Government technicians have stated that the adjustment now would be very difficult, because there is not all the necessary budget.

Bolsonaro

The Public Ministry of Accounts has asked for the freezing of assets belonging to former President Jair Bolsonaro, the retired governor of the Federal District, Ibaneis Rocha (MDB), and the former Minister of Justice and former secretary of public security of the DF, Anderson Torres.

The document indicates that the purpose of the blockade is to guarantee public compensation for the damage caused by the invasion of the Bolsonarist coup plotters last Sunday (8) to the building of the Federal Supreme Court (STF), the National Congress and the Planalto Palace, which I’m located in Praça dei Tre Powers, in Brasilia.

Powell’s speech

In defense of the independence of the monetary authority, Jerome Powell, president of the Fed, central bank of the United States, said that the absence of direct political control over the decisions of the institution allows it to take the necessary measures without considering political factors short term. “I believe the benefits of independent monetary policy in the US context are well understood and widely accepted.”

For Powell, with independence comes the responsibility to provide the transparency that allows for effective congressional oversight. “At the Fed, we view this accountability as active, not passive, and over the past few decades we have steadily expanded our efforts to provide meaningful transparency about the basis and consequences of the decisions we make in service to US government. public. We are strongly focused on fulfilling our statutory mandate and providing useful and appropriate transparency,” he said.

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