MercoPress. South Atlantic News Agency

Foreigners reduced holdings of Brazilian bonds: market turmoil and political uncertainty

Non-residents reduced their holdings by 24.3 billion reais (US$ 4.6 billion) in April, bringing the total reduction so far this year to over 56 billion reais

Foreigners reduced their holdings of Brazilian bonds in April to the lowest since 2009, figures on Wednesday showed, against the backdrop of rising financial market turmoil fueled by the coronavirus crisis and domestic political uncertainty.

Non-residents reduced their holdings by 24.3 billion reais (US$ 4.6 billion) in the month, bringing the total reduction so far this year to over 56 billion reais and to almost 100 billion during the last 12 months, a Treasury presentation showed.

Non-residents now hold just 9.4% of Brazil’s federal domestic debt securities, the lowest since December 2009 when they held 8.8% of the total, according to Luis Felipe Vital, public debt manager at the Treasury.

With Brazil’s federal domestic securities debt in April totaling 3.94 trillion reais, non-residents’ holdings stood at around 370 billion reais.

The figures back up central bank data published on Tuesday that showed a near-US$5 billion outflow from Brazilian debt markets in April, which followed a bigger stampede for the exits the month before.

Treasury said that the coronavirus outbreak fueled demand for fixed rate, short-dated bonds in April and hampered its ability to issue debt. But Vital said conditions this month are much improved.

“Throughout May the global picture got better and Treasury issuance so far this month have been significantly higher,” Vital said. Brazil has adequate liquidity buffers and its cash position will be strengthened by May’s net issuance, he said.

Treasury Secretary Mansueto Almeida said last week that Brazil sold just over 18 billion reais of short-term debt on Thursday, its biggest sale of the year.

Treasury also said on Wednesday that the average cost of servicing Brazil’s federal debt fell to a record low 8.03% in April. That debt load fell 1.28% in April to 4.16 trillion reais from the month before.