Treasury Direct Program Sparks Public Interest in Government Debt Instruments

CEIC Brazil Data Talk - February 5, 2014 - Created by the National Treasury in January 2002 in partnership with the Brazilian securities, commodities and futures exchange, BM&FBOVESPA, Brazil's Treasury Direct Program helps increase the accessibility of the public debt markets. While many public bond markets traditionally have high minimum investment thresholds (especially relative to equity markets), the minimum investment under the Treasury Direct programme is just BRL30 (approximately USD13), hence allowing retail investors to invest in various National Treasury bonds, bills and notes and eliminating the need for a bank as intermediary, although the investor still needs to be registered with a brokerage firm and pay a management fee for this transaction. It is worth highlighting that there is income tax levied. The rate is 22.5% on interest income for investments of up to 180 days, 20% for 181 to 360 days, 17.5% for 361-720 days and 15% for 721 days or more. Investible instruments under the programme include National Treasury Bills, Treasury Notes (series B, series B: Principal, series C, series F) and financial treasury bills (LFT). While the time to redemption can vary wildly depending on the type of security purchased, over the years there has been a rising preference for longer term maturities (i.e. public debt securities with terms exceeding five years), moving away from short-term instruments with maturities of up to a year these can be redeemed prior to maturity at market price. The stock of instruments with terms of up to a year and those with terms exceeding five years stood at 4.68% and 44.24% respectively as of December 2013, compared to 10.30% and 34.94% during December 2012 and 36.20% and 18.00% in December 2005. As of December 2013, the total outstanding value invested under the Treasury Direct Program amounted to BRL11.39 billion compared to BRL9.59 billion a year ago. Of this amount, a significant proportion (42.07%) of outstanding securities was in the form of Series B: Principal Treasury Notes (NTN-B Principal), de facto zero-coupon bonds indexed for inflation using the National Consumer Price Index (IPCA). In terms of net sales, the Treasury Direct Balance boasts positive net sales for seven consecutive months since June 2013, with monthly net sales of BRL302.94 million during December 2013. NTN-B Principal notes constitute an increasingly larger proportion of investments under the Treasury Direct Program (rising, as mentioned, to 42.07% by December 2013, from 38.63% during the previous year and 30.68% during January 2012). Given rising inflation (NTN-B and NTN-B: Principal are indexed using the IPCA and NTN-C are indexed using an alternative inflation index, IGP-M) with rising interest rates (LFTs are indexed using the Selic Rate), these instruments will likely see increasing public attention in the near future. Presently, the program boasts 4,660 participants (i.e. those with outstanding holdings of Treasury Securities) as of December 2013 or a total of 378,267 investors since its inception. A salient trend among the investor demographics is that it has become increasingly skewed towards older investors; the proportion of registered investors from 56 to 65 years old and investors above 66 years stood at 11.00% and 5.99% respectively as of December 2013, rising from 10.54% and 5.28% during December 2012 and 9.07% and 3.94% during December 2009. This rising share of older investors appears to be in line with traditional wealth management wisdom of safer fixed income investing as individuals approach retirement age. Recently the Monetary Authority has signalled to the market its commitment to tackling high inflation rates, implying possible further increases in the Selic rate. Combined with the relatively poor performance of the equity markets (the BM&FBovespa equity index has been somewhat lacklustre during 2013) it suggests that public interest in the Treasury Direct Program would be sustained owing to its role as a hedge against the erosion of purchasing power via inflation, while weathering a relatively turbulent investment climate. By Bruno Vasconcelos Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
5th February 2014 Treasury Direct Program Sparks Public Interest in Government Debt Instruments