Brazilian government borrowing jumped to its second-highest on record in September, Treasury figures showed, meaning Brazil issued more debt in the first nine months of this year than the whole of last year.
With the government borrowing large amounts to fund its pandemic-fighting emergency support and income transfer programs, Treasury said it issued 155.3 billion reais of debt in September and, after redemptions, a net 80.7 billion reais.
Both were the second highest on record after July this year. Almost all was in fixed rate debt in maturities of six and 12 months, to meet investor demand for shorter-term, less risky borrowing. Brazil’s total federal public debt rose 2.59% from the month before to 4.53 trillion reais (US$ 800 billion), while the total domestic debt stock rose 2.56% to 4.28 trillion reais, Treasury said.
Investors’ reluctance to lend to the government long-term pushed up the share of debt maturing in the next 12 months to 26% of the total from 21.7% in August, Treasury said, the highest in six years. This means Brazil’s 798.3 billion reais of debt issuance in the first nine months of 2020 already exceeds last year’s total 759.3 billion reais, Treasury said.
Treasury officials said they expect more months of net issuance ahead. This should strengthen the liquidity cushion of cash to meet debt repayments in an emergency, which is currently more than their goal of three months. They also said markets stabilized in October, and there is no risk to their longer-term financing plans.
The average maturity of domestic debt issued in the 12 months to September fell to a new all-time low of 2.09 years, from over 5 years before the pandemic. The average cost of domestic debt issues in the year to September also fell to a new low of 4.64%, while the average cost of servicing the overall debt stock ticked up to 8.72% from 8.54%.
Brazilian rate curves steepened sharply in September, with short-term borrowing costs anchored by the central bank’s benchmark Selic rate at a record low of 2.00%, and growing angst over Brazil’s fiscal outlook pushing up longer-term rates.
The spread between January 2022 and January 2027 interest rate futures widened to 465 basis points last month but has since come back to around 400 bps.