Transcript Slide 1

Broadening the investors base: practical examples from Brazil
Otavio Ladeira Medeiros
Washington , D.C
October 29-31 2012
Investor Base – Main ideas
Why is important to have a large and diversified Investor Base ?

A large and diversified investor base is important for ensuring strong and stable demand for
government debt securities. The investor base should ideally include both domestic and foreign
investors and all types of institutions – ranging from commercial banks to insurance companies,
pension funds, and mutual funds, as well as individual investors.

Different time horizons, risk preferences and trading motives is vital for stimulating active trading
and high liquidity and enables the government to execute its funding strategy under a wide range
of market conditions.
With that, take two interesting examples : Non Resident Investors and Pension Funds
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Investors Base – Non-Resident Investors
In 2005-06, The National Treasury adopted a series of measures aimed at improving DPF management
 The
Brazilian National Treasury took further steps to consolidate the process of market
opening to NRI – Non-Resident Investors. On Feb-06 non-residents investors were exempted
from withholding tax on gains in operations with domestic federal bonds. That searched for :
 Increasing
the participation of foreign investor, which typically prefer long term bonds,
especially fixed rated and inflation linked ones;
 Help
to increase of participation of these bonds and the lengthening of the average
maturity of the public debt
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Investors Base – Advances in Federal Public Debt Management
NRI: Domestic Debt share
16%
Investment Grade
14%
13.34%
12%
10%
8%
IOF: 6% tax on foreign
investment (Oct-10)
6%
4%
Withholding Tax Exemption (Feb-06)
2%
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
0%
NTN-F 2017 - First nominal 10y bond issued in Jan 2007
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Investors Base – Pension Funds
Active behavior with Pension Funds managers

In 2006 the scenario for a macroeconomic stabilization was better configured.
 This
allowed a portfolio change from the Pension Funds side: leveraged with overnight
rate position – from the asset side, and exposed with inflation linked bonds – from the
liabilities side
 The unbalance
was sub-optimal:
 Treasury wanted to increase Inflation Linked bonds on the overall debt
 Pension Funds would loose money in locking
in that position
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Investors Base – Pension Funds
Active behavior with Pension Funds managers
» Then, the Treasury approached Pension Fund managers on 2005-2006
» Show them the importance of rebalancing their portfolios sooner rather than later
Example: Hypothetical Yield for an Inflation-Linked Investment vs Overnight Rate -(% p.y.)
NTNB May-2007
Floating Rate Bonds HTM
Inflation-Linked bonds HTM
12.4
12.3
12.2
12.1
12
11.9
11.8
11.7
11.6
11.5
11.4
12.25
12.26
12.26
12.22
12.2
12.18
12.06
11.5
1 month
2 months
3 months
4 months
5 months
6 months
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Investors Base – Improvements on Governments´ Funds
“Government´s” portfolio => efforts to align with the Federal Public Debt guidelines
Jan -12
Fixed rate
16%
March -12
Inflation
linked
bonds
18%
Fixed rate
41.05%
Floating
66%
Inflation
linked
bonds
33.8%
Floating
25.13%
After “Extramercado”
June -12
Fixed
rate
42.3%
Floating
0.3%
Inflation
linked
bonds
57.4%
After “Extramercado” + FGTS
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Investors Base – Retail Sales Program
Tesouro Direto

The Tesouro Direto, a retail sales program to sell regularly bonds to Brazilians citizens through internet, was
launched in 2002 with the following objectives: (i) to offer another savings product alternative; (ii) to increase the
investors base; and (iii) for didactic purposes (transparency).

uses roughly the same on-the-run instruments for debt roll-over. One exception tailored for retailers:
Zero-coupon inflation-linked bonds, the most sold

individuals choose one agent (bank or broker) to link them into the system and then are enabled to buy
securities regular government securities through the internet

Costs vary a lot – there is a list on the website

There is weekly liquidity: bonds are bought back by the Treasury every Wednesday

Minimum amount per operation: 1/10 of a bond unit => around US$ 30.0

Customized portfolio: 3 kinds of bonds (fixed rate, inflation linked and floating rate) with maturities
ranging from 1 to 40 years.
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Investors Base – Retail Sales Program
Tesouro Direto: Investors evolution
350,000
317,352
300,000
250,000
200,000
150,000
100,000
50,000

Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
-
There are 500 thousand Brazilian investing directly in stock exchange … a lot of room for increasing the number
of Treasury Direct participants.
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Investors Base – Retail Sales Program
Tesouro Direto Outstanding Stock
10.00
8.99
9.00
8.00
7.00
R$ Billion
6.00
5.00
4.00
3.00
2.00
1.00

Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
-
Despite it reached R$ 9 billion (roughly USD 4,5 billion), the Treasury Direct Program represents less than 0,5%
of the total Federal Public Debt held by the public.
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Federal Public Debt Holders: Broadening the Investors base
Public Debt Holders - Snapshot ( Jan 2007)
Public Debt Holders - Snapshot ( Aug 2012)
Financial
Institutions
33%
Government
7%
Financial
Institutions
27%
Mutual Funds
23%
External debt
11%
Others
8%
Insurance
2%
Government
8%
Pension Funds
15%
Non-residents
1%
External debt
5%
Mutual Funds
24%
Pension Funds
16%
Non-residents
13%
Others
4%
Insurance
3%
… result of a long term strategy adopted by the National Treasury aimed at
diversifying the investor base.
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Public Debt Management
Holders’ Domestic Public Debt Portfolio
By security type (August 2012)
» As regards the debt by type, 50% of bank holdings
are fixed rate bonds, while 54% of Mutual Fund’s
100%
90%
20%
19%
29%
80%
70%
53%
56%
26%
74%
60%
50%
51%
0%
40%
30%
portfolio is in floating rate bonds. Inflation-linked
3%
53%
9%
20%
21%
10%
78%
23%
Mutual Funds
24%
18%
Fixed Rate
Pension
Floating Rate
By maturity (August 2012)
44%
100%
90%
0%
Financial
Institutions
bonds are 73% of Pension Fund holdings.
Government
Non-residents
Inflation Linked
Insurance
Others
Source: National Treasury
17%
18%
21%
29%
80%
70%
19%
52%
15%
44%
25%
20%
60%
11%
50%
40%
» Regarding maturities, Pension Fund portfolio’s have
39%
41%
16%
21%
30%
33%
22%
20%
longest duration.
29%
10%
25%
28%
23%
30%
12%
10%
0%
Financial
Institutions
Mutual Funds
Up to 1 Year
Pension
From 1 to 3 Years
Non-residents Government
From 3 to 5 Years
Insurance
After 5 Years
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Source: National Treasury
For additional information access the National Treasury website:
www.tesouro.fazenda.gov.br
Or contact Institutional Relations area:
[email protected]
The information on this presentation is issued by the Brazilian Debt Management Office (DMO) for informational purposes. It does not contain and is not
an invitation or offer to buy or sell securities.
Translation of the original text of this document is provided only for the convenience of the reader. While reasonable care has been taken to ensure the
authenticity of the translation, its accuracy cannot be guaranteed. Reliance upon this translation shall be at the reader's own risk. Under no circumstances,
shall the Brazilian National Treasury, its officers, employees or agents be liable to the reader or anyone else for any inaccuracy, error, inconsistency,
omission, deletion, defect or alteration of the content of the translation from the original Portuguese text, regardless of cause, or for any damages
resulting therefore. The original Portuguese text of this document is the only official version, which can be found in
http://www.stn.fazenda.gov.br/index.asp. In the event of any discrepancy or contradiction between the Portuguese and translated version, the
Portuguese version shall prevail.
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