Brazil treasury says foreign investors pouring back into public debt

By Marcela Ayres and Bernardo Caram

BRASILIA (Reuters) – Foreign investors are returning in numbers to Brazil’s public debt market, Treasury Secretary Rogerio Ceron told Reuters, just after local financial assets rallied since the government proposed new fiscal rules two weeks ago.

In a late Tuesday interview, Ceron said the government expects to double the foreign share of domestic public debt to around 20% by 2026. He cited demand at four times last week’s offering of a $2.25 billion sovereign bond issue, Brazil’s first since 2021, as evidence of renewed foreign interest.

“The external issuance proves this clearly. We feel the presence of non-residents more strongly in our auctions,” he said.

President Luiz Inacio Lula da Silva’s new government made a long-awaited announcement on March 30 of proposed fiscal rules.

Since then, the country’s yield curve has improved sharply, with the rate on the most liquid interest rate futures contract, due in January 2025, falling to 11.790%, from more than 13% two months ago.

Confidence in the new fiscal rules, along with easing inflation and an improving global outlook, also boosted Brazil’s currency to its strongest level in ten months, while the Bovespa stock index rose nearly 5% so far this month.

Ceron said the new fiscal framework signals a trajectory for public debt to stabilize, providing “much relief” to the markets, although some critics still question the timeline for a projected fiscal adjustment.

The new fiscal framework will be presented next week to Congress, Ceron said.

He said it will contain a cap on the growth of public investment if the primary surplus exceeds established targets. This could contribute to stronger primary surpluses, helping to improve the trajectory for public debt.

(Reporting by Marcela Ayres and Bernardo Caram; Editing by Brad Haynes and Aurora Ellis)