the treasure of Brazil announced this Wednesday the issuance of a new 10-year sovereign bond in dollars, returning to the foreign market after more than a year and a half and measuring investor sentiment toward proposed new tax rules.
The new government of President Luiz Inácio Lula da Silva announced last week its plans to balance limits on spending growth with promises to strengthen social programs, boosting local financial markets worried about a possible increase in public debt.
Long-term interest rates on Brazil’s yield curve have fallen since the Ministry of Finance presented that proposal.
“The market liked the initial discussion on the fiscal framework and (Central Bank President) Roberto Campos Neto is well regarded abroad, so the market has reacted well (to the new bond issue)”said Luciano Feres, economist and chief financial officer of Somus Capital.
IFR, a Refinitiv service, reported that “initial talks” for the issuance of the new bond pointed to a yield between 6.50% and 6.625%. The government said details of the placement will be released later on Wednesday.
“The objective (is) to continue the strategy of the National Treasury to promote the liquidity of the sovereign interest curve in dollars in the external market, provide a reference for the corporate sector and anticipate the financing of maturities in foreign currency”, said the Treasury.
The operation will be led by Bank of America, BNP Paribas and Morgan Stanley. The last issuance of Brazil’s foreign debt occurred in June 2021 when it grossed $2.25 billion.
Lula’s government has promised to issue a foreign currency bond linked to environmental criteria, but two people familiar with the matter, speaking on condition of anonymity, said Wednesday’s issue was not the long-awaited “green bond.”
Treasury officials told Reuters the first green bond is likely to be issued in the second half of the year, likely for as much as $2 billion and possibly split into two tranches.
The president of the Central Bank of Brazil praises fiscal efforts
He President of the Central Bank of Brazil, Roberto Campos Netostated this Wednesday that fiscal efforts made until now by the government of the president Luiz Inacio Lula da Silva are positive and removed the risk of a “messier” debt trajectory after the presentation of an expected fiscal framework.
In his speech at an event organized by Bradesco BBI, Campos Neto stressed, however, that there is no mechanical relationship between the fiscal situation and interest rates. He added that the critical factor is how fiscal measures affect inflation expectations and? the Central Bank will evaluate how the approval process will develop in Congress of the new fiscal framework.
Campos Neto said that demanding the government a very large adjustment in spending should be done “with more parsimony”since Brazil has not been able to do so in its recent history.
President Lula repeatedly criticized the Central Bank and his boss for the high borrowing costs amid a cooling of inflation. The bank’s reference interest rate has been maintained at 13.75% since Septemberits highest level in six years.
Campos Neto declared that, in the Monetary Policy Committee (Copom), nothing is a political decision and that all aspects considered are technical.
Regarding the debate on the increase in inflation targets, he stressed that The Central Bank does not believe that monetary managers will gain degrees of freedom with this change.
Campos Neto also stated that any kind of noise, even about inflation targets, affects inflation expectations. “Reducing noise is important”he said, adding that the Government sets the inflation target, and it is important that the Central Bank reinforces that it will pursue it.
Source: Ambito
