Brazil makes foreign issue with higher interest and high demand – 05/04/2023 – Market

In its first test of confidence before international investors, the government of Luiz Inácio Lula da Silva (PT) carried out this Wednesday (5) an issue of debt securities abroad, in an auction with high demand. According to the National Treasury, the amount raised was US$ 2.25 billion (R$ 11.35 billion).

The government opted for issuing a new ten-year bond, the Global 2033. In an environment of high interest rates, including on the international scene, Brazil had to pay a rate of return of 6.15% – the highest since 2006 , when the issue of the ten-year bond paid 6.249%.

In July 2021, the last time this type of security was launched, the rate stood at 3.875%, still under conditions of greater liquidity and low interest rates.

Even so, the cost of issuing this Wednesday was below the 6.50% to 6.625% initially estimated, given the strong appetite of investors for Brazilian debt. Demand was US$ 8.5 billion, equivalent to 5.7 times the initial value estimated for the operation (US$ 1.5 billion).

The interest is considered above average, since the demand is usually three or four times the value of the offer of bonds. “The stronger demand allowed the Treasury to raise US$ 2.25 billion”, said the agency.

The issuance of sovereign bonds takes place a week after ministers Fernando Haddad (Finance) and Simone Tebet (Planning and Budget) announced the details of the government’s proposal for a new fiscal framework.

The theme is crucial in trying to improve the perception of Brazilian and foreign investors about the sustainability of the country’s debt, which today is already at a high level. The issuance takes place, therefore, at a decisive moment for the government to measure the ability of the new framework to serve as a sign of this commitment.

The sovereign issuance abroad works as a reference for the interest rates to be paid by Brazilian companies in their own foreign funding.

The ten-year term represents an intermediate horizon among the paper options that are usually offered in external auctions —the Treasury has also recently issued five-year and 30-year bonds.

“The purpose of the operation is to continue the National Treasury’s strategy of promoting the liquidity of the sovereign interest rate curve in dollars in the external market, providing a reference for the corporate sector, and anticipating financing of maturities in foreign currency”, said the Treasury.

At the beginning of the year, the agency informed that it already had all the resources in foreign currency necessary to honor the external debt that matures in 2023. The new issue, therefore, helps to improve the management and profile of this liability.

In this case, the issuance also served as a thermometer for the government to map which actors were interested in the Brazilian debt. According to the agency, there was a presence of “high quality” investors, who tend to look for assets in countries with an investment grade — a good payer seal that Brazil has not had since 2015.

The current government has the ambition to place Brazil in this select group of economies, which have access to a wider range of investment sources.

“The operation demonstrates the great appetite of foreign investors for Brazilian assets,” stated the Treasury.

This was the first issuance of its kind since 2021, since Brazil did not carry out external funding in 2022. The operation was led by Bank of America, BNP Paribas and Morgan Stanley.