Strategic trade
Trade view / 22 September 2015 at 13:35 GMT

#SaxoStrats. UPDATE: Staying positive on Banco do Brasil

Fixed Income trader / Saxo Bank
Instrument: BDORY:xnas
Price target:
Market price:

Since launching our trade view on Banco do Brasil, the situation in Brazil has further deteriorated following both political and economic concerns among investors.
Without disregarding the negative impact from the plunge in commodity prices, we believe the crisis is more political than it is economic, and as such much more manageable.
One of the main reasons behind the trade was our assumption that the Federal Reserve would be less likely to hike interest rates than what the market anticipated and in any case, would be likely to follow a very soft trajectory in normalising interest rates. This should clearly be supportive for emerging market bonds such as the USD-denominated corporate bonds of large Brazilian firms.
However, given the recent political turmoil and uncertainty – underlined and amplified by an S&P credit rating downgrade below investment grade status – these bonds have seen some selling pressure recently. 

We believe the speculated impeachment against incumbent president Dilma Rouseff as well as the possible replacement of the president of the central bank could push the country towards more market-oriented leadership and thus constitutes significant potential positive triggers.
In light of both this and the easier policy stance from the Federal Reserve confirmed last week - we re-iterate our positive view on this bond. 

You can read more about the background of our view in the upcoming Q4 edition of Saxo Bank's Essential Trades series.

— Edited by Michael McKenna

For more on bonds click here.

Non-independent investment research disclaimer applies. Read more


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