The cost of paying back Brazil’s ballooning domestic debt fell to a record low | Instant News


BRASILIA (Reuters) – The cost to the Brazilian government to pay off its ballooning domestic debt fell to an all-time low in August, official figures showed Monday, following official rate cuts and a dramatic shortening of its debt profile.

The 200 reais note is seen after the Central Bank of Brazil issues new banknotes in Brasilia, Brazil September 2, 2020. REUTERS / Adriano Machado

The Treasury Department also said it is monitoring the short-term market, its floating rate “LFT” closely, and expects it to stabilize soon after the recent spike in premiums over the central bank’s benchmark Selic rate “to some extent” attracts buyers.

“We believe the market is experiencing price swings and, to some degree, it has to stabilize,” Luis Felipe Vital, head of debt management, told reporters online after the Ministry of Finance released its debt report for August.

As the Treasury chart below shows, the average interest rate on domestic federal debt shares fell to a new low of 7.3% in August, and the average interest rate on new domestic debt issued in the 12 months to August fell to 4.85%.

Brazil debt interest costs:

Meanwhile, the average cost of paying the broader federal public debt burden fell to 8.54%, the lowest in one year.

Brazil’s interest rate curve has climbed sharply in recent weeks, with short-term borrowing costs underpinned by the central bank lowering Selic’s benchmark interest rate to a record low of 2.00%, and growing concerns over Brazil’s fiscal outlook driving up long-term interest rates. .

Finance Minister Bruno Funchal told Reuters last week that the steeper curve was a “warning” that Brazil “has no room for error” in reinstating its record debt and deficit.

On Monday, the gap between January 2022 and January 2027, the futures rate widened to 455 basis points, even wider than the peak of the market, economic and public health crisis earlier this year.

Brazil’s tariff curve:

As investors reduce risk and lend to Brazil for shorter terms, the average maturity of new domestic debt issued in the 12 months to August fell to a new all-time low of 2.36 years from 3.15 years in July, said Finance Department.

Brazil’s public debt as a whole rose 1.56% in August to 4.41 trillion reais ($ 768 billion), while the total share of domestic debt rose 1.35% to 4.18 trillion reais, the Ministry of Finance said.

Reporting by Jamie McGeever and Marcela Ayres; editing by Jonathan Oatis, Bernadette Baum and Cynthia Osterman

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