Yield Curve Analysis in Brazil

Brazilian bonds opened slightly weaker today. It is no surprise
since our market traded heavy for the last several days if
compared to performance of other markets (equity, UST..) Bovespa
moving higher at the moment and that may provide more fuel to
lift bonds higher. The right strategy is to sell into the
strength, reduce your long and wait for opportunity to go short.
On the curve: Bra 40 still lags but not as much as yesterday.
Bra 27 cheapened even more overnight, while Bra 25 grew more
expensive. C bond looks ok here. Belly of the curve appreciated
here: Bra 12, 11 all look expensive here and even Bra 09 looks
less attractive. Bra 12? is still cheap, however, not as before
and it is outperforming. Bra 10? became expensive here.

RELATIVE VALUE IDEA: BUY BRA 27/ SELL BRA 25
PRICE YIELD SPREAD COUPON
BRA 27 116.15 8.48 445 10.125
BRA 25 102.10 8.52 449 8.75

CURRENT YIELD DIFF -2BPS, HISTORICAL AVERAGE -9BPS

I RECOMMEND CASH NEUTRAL RATIO: LONG 1 BRA 27 SHORT 1.15 BRA 25
COUPON DIFFERENTIAL WILL PROVIED POSITIVE CARRY.

*PRICE LEVELS ARE BID/OFFER LEVELS; IT IS POSSIBLE TO DO A
SWITCH AT BETTER LEVELS

This document is intended for informational purposes only. It is not a
solicitation, commitment or an offer to buy or sell or to participate in any
particular trading strategy, nor is it an official confirmation of terms. You
should consult with your own tax, legal and investment adviser on any such
decision. It may be based on information generally available to the public
from sources believed to be reliable. No representation is made that it is
accurate or complete or that any returns indicated will be achieved. Past
performance is not necessarily indicative of future returns. BBVA disclaims
any and all liability relating to these materials, including, without
limitation, any express or implied representations or warranties for
statements or errors contained in, or omissions from, this document. Price,
availability and other information are subject to change without prior
notice.

Golodner, Aleksandr [Aleksandr.Golodner(at)bbvany.com]