Despite the risk of a weaker economy and of heightened volatility in equity markets, the protracted exit for Dilma favours local debt. We expect Banco Central to continue to intervene in response to excessive currency appreciation; but improved investor sentiment thanks to the perceived prospect of a new government should ensure that the Real does not collapse and that inflation continues to decline, opening the way for lower interest rates. We add a positive view of Brazilian local debt to our list of high-conviction absolute market views. (EM Macro Strategy 7th April 2016).
Trade generates 220bps of profit which we take on 7th September 2016.