MercoPress. South Atlantic News Agency

Brazil treasury pays highest yield to launch new 10-year fixed-rate domestic bond

Dilma Rousseff faces re-election this year and there are fears she might be unwilling to cut spending

Brazil's Treasury on Thursday paid the highest yield ever to launch a new 10-year benchmark fixed-rate domestic bond. The Treasury said it sold two million NTN-F bonds maturing in January 2025, worth 1.64 billion Reais (683 million dollars), at a yield as high as 13.3899%. The bond is expected to become Brazil's new 10-year benchmark paper.

 The yield was considerably above Brazil's base Selic rate, currently 10%, but lower than some analysts had feared. Most economists forecast the central bank will raise the Selic to 10.25% this month to fight inflation.

The yield was also higher than the 11.55% the Treasury paid in 2012 at the launch of its previous 10-year NTN-F, and the 13.299% it paid in 2010 at the launch of an NTN-F maturing in 2021. Still, the result was better than the 13.5% yield many analysts feared the Treasury would be forced to pay.

Investors have been demanding higher returns to buy Brazilian assets as heightened government spending, slow economic growth and persistently high inflation have greatly reduced the allure of Latin America's largest economy.

Fears that President Dilma Rousseff will be unwilling to cut back on spending in an election year have led many analysts to bet that Brazil's debt may be downgraded by at least one rating agency this year.

In related news Brazilian energy giant Petrobras said it will sell 5 billion dollars in bonds to help finance development of offshore oil fields over the coming five years. The bond sale constitutes four tranches on the New York Stock Exchange -- three of them Euro-denominated in four, seven and 11-year notes -- with the other a 20-year sterling note.

The Euro issues totaled 3.05 billion Euros (4.15bn) with the sterling issue worth £600 million pounds (984m). The bonds, issued via the firm's Petrobras Global Finance B.V. subsidy, bear yields of 2.829% for 2018 expiry, 3.849% (2021), 4.845% (2025) and 6.732% (2034).

“The resources derived will be used to finance investments as per the company's 2013-2017 investment plan,” said the state-owned firm, Latin America's biggest oil producer in terms of market value.

The move reinforces a shift in strategic focus as the company concentrates its efforts on tapping huge and lucrative “pre-salt” deepwater deposits off Brazil's Atlantic coast.

Petrobras' investment plan of 236.7 billion is one of the world's biggest corporate spending programs and three fifths of the cash has been earmarked for pre-salt operations.

Pre-salt deposits buried beneath several kilometers of ocean, bedrock and hot salt beds may hold up to 100 billion barrels of high quality recoverable crude, providing Petrobras and Brasilia with a huge bonanza.