EM LATAM CREDIT: Banco do Brasil: Higher Loan Loss Provisions Likely – Negative
(BANBRA; Ba1/BB/BB)
• Banco do Brasil’s agribusiness loan portfolio was BRL399 billion at the end of the third quarter, with a delinquency rate of 5.34% in Q3 2025. BRL6.6bn of loans for 928 clients were under court ordered restructuring requests in September, according to Valor who also quoted a Vice President of the bank for agribusiness and family farming who said they are required to provision for 75% of the total loan amount in restructuring cases even if the loan is less than 90 days past due.
• BANBRA 31s were quoted T+165bp, 25bp tighter since June 30th, and trading 10bp wide to the Brazil sovereign (BRAZIL; Ba1/BB/BB) after trading as wide as 87bp wide of the sovereign in early September amid concerns about the deterioration in the agricultural loan portfolio. Those concerns seem to be resurfacing.
• A Brazil government initiative which was already being discussed nearly a year ago aimed to clear BRL19.5bn in defaults, restoring credit access for nearly 1 million people according to Valor. The BRL12bn (USD2.2bn) Brazil government support program was finally authorized and which we posted on in September 2025 to enable farmers to renegotiate debt. That measure was expected to cushion the impact to some extent and which triggered the subsequent rally in the bonds:
https://mni.marketnews.com/44LbBKr
• The bank talked to 83,000 producers about renegotiating their debts but only 5,700 were more than 90 days past due so were not accounted for as delinquent according to today’s Valor article. This implies to us a warning signal that delinquencies could rise substantially in the coming months. There has also been a reduction in available credit with lending declining to BRL 78.3bn from July-November 2025 from BRL96.2bn the same period a year ago.
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
