Senior Credit Analyst - Emerging Markets, EM Spreads

Leandro Gubler

Senior Credit Analyst - Emerging Markets

EM Spreads

Credit

<ul>
<li>Neutral from Underweight: Flávio Bolsonaro's first-round lead and PL's gains in Congress remove most event risk, but we think markets are pricing consolidation before any fiscal framework exists.</li>
<li>Fiscal arithmetic unchanged: Gross debt rises to 102.3% of GDP by 2028 on a near-zero primary balance; the 2027 budget stays with the outgoing Congress, delaying execution.</li>
<li>Valuation caps upside: Brazil 2035s offer 8 bps over Mexico 2034s after 28 bps of compression in three weeks; we stay defensive and favor switching out of the 2041s.</li>
</ul>


Neutral from Underweight: Flávio Bolsonaro's first-round lead and PL's gains in Congress remove most event risk, but we think markets are pricing consolidation before any fiscal framework exists.
Fiscal arithmetic unchanged: Gross debt rises to 102.3% of GDP by 2028 on a near-zero primary balance; the 2027 budget stays with the outgoing Congress, delaying execution.
Valuation caps upside: Brazil 2035s offer 8 bps over Mexico 2034s after 28 bps of compression in three weeks; we stay defensive and favor switching out of the 2041s.


Brazil Sovereign Debt: The Ballot Moved, the Budget Has Not

Head of Research and Global Chief Strategist, Steno Research

Andreas Steno

Head of Research and Global Chief Strategist

Macro and Geopolitical Research House

Steno Research

Steno Research is a new macro and geopolitical research house. We are based out of Copenhagen, Denmark, but have an international team and a strong network of sources and partners around the world. The team is lead by Andreas Steno, previous global head of strategy at Nordea Bank, and Mikkel Rosenvold, former chief consultant in the Danish Ministry of Finance.

Cross Asset Strategy

<ul><li>Markets are pricing in heavy cuts for next year as inflation keeps coming in soft, making a soft landing the base case for the bulls, but everything comes at a price.</li><li>But how are assets likely to perform if the market narrative is correct and yields will indeed come down in a continued bull-steepening fashion, which in our view is the most likely scenario in H1 2024?</li><li>We have pulled out some of our cross-asset beta studies from our data-library to provide you with an overview of how assets perform during various yield curve regimes.</li></ul>

Markets are pricing in heavy cuts for next year as inflation keeps coming in soft, making a soft landing the base case for the bulls, but everything comes at a price.But how are assets likely to perform if the market narrative is correct and yields will indeed come down in a continued bull-steepening fashion, which in our view is the most likely scenario in H1 2024?We have pulled out some of our cross-asset beta studies from our data-library to provide you with an overview of how assets perform during various yield curve regimes.

Bull Steepening Watch – Is Lower Yields Really What Risk Assets Want?

Junior Finance Analyst, Steno Research

Ulrik Simmelholt

Junior Finance Analyst

<ul><li>Takeaways: Cohesion back at OPEC, but for how long?</li><li>US the biggest winner in crude oil markets.</li><li>Last week’s much anticipated OPEC meeting concluded with the decision to cut production further by 1 million barrels per day.</li></ul>

Takeaways: Cohesion back at OPEC, but for how long?US the biggest winner in crude oil markets.Last week’s much anticipated OPEC meeting concluded with the decision to cut production further by 1 million barrels per day.

Energy Cable #48 – Natural Gas Longs to Scholz: “Thank You!”

Head of Research, Steno Research

Emil Moller

Head of Research

<ul><li>Here at Steno Research, our primary concern has been growth rather than inflation since around the end of H1.</li><li>While this divergence is gradually gaining mainstream recognition, emerging markets have been well ahead of the curve.</li><li>Consequently, disinflationary surprises continue to be prevalent.</li></ul>

Here at Steno Research, our primary concern has been growth rather than inflation since around the end of H1.While this divergence is gradually gaining mainstream recognition, emerging markets have been well ahead of the curve.Consequently, disinflationary surprises continue to be prevalent.

EM by EM #29: Biden’s Party, EM’s Hangover & Scholz’s Nightmare

<ul>
<li>Brazil is a carry credit, not a compression story. External strength limits downside, but fiscal drift and election-year reform risk cap upside.</li>
<li>We initiate at Neutral. Tight front-end spreads and fair belly valuations argue against Overweight, while reserves, local funding depth and carry argue against Underweight.</li>
<li>We prefer the 2036s, with 2035s close behind. Use 2030s/2031s defensively, avoid 2041s, and keep 2045s/2047s as higher-beta satellites.</li>
</ul>


Brazil is a carry credit, not a compression story. External strength limits downside, but fiscal drift and election-year reform risk cap upside.
We initiate at Neutral. Tight front-end spreads and fair belly valuations argue against Overweight, while reserves, local funding depth and carry argue against Underweight.
We prefer the 2036s, with 2035s close behind. Use 2030s/2031s defensively, avoid 2041s, and keep 2045s/2047s as higher-beta satellites.


Brazil Sovereign Debt: External Strength, Fiscal Drift

United States

iShares MSCI Brazil Small-Cap ETF is an exchange-traded fund incorporated in the USA. The ETF seeks to track the performance of the MSCI Brazil Small Cap Index Fund.

iShares MSCI Brazil Small-Cap (EWZS US)

Brazil Sovereign Debt: The Ballot Moved, the Budget Has Not

Brazil's first round repriced the curve before a single fiscal number changed; the question now is how much consolidation investors have already...

Leandro Gubler

Bull Steepening Watch – Is Lower Yields Really What Risk Assets Want?

Let’s run through each asset class to see where to put your eggs if a bull-steepening of the yield curve continues into 2024.

Steno Research

Energy Cable #48 – Natural Gas Longs to Scholz: “Thank You!”

Last week’s much anticipated OPEC meeting concluded with the decision to cut production further by 1 million barrels per day.

Steno Research

EM by EM #29: Biden’s Party, EM’s Hangover & Scholz’s Nightmare

Here at Steno Research, our primary concern has been growth rather than inflation since around the end of H1. While this divergence is gradually...

Steno Research

Brazil Sovereign Debt: External Strength, Fiscal Drift

Brazil’s external strength supports carry, but fiscal drift caps compression; Neutral, with the 2036s preferred and 2035s close behind.

Leandro Gubler