Brazil: Federal public debt recedes to US$1.1 trillion in March

RIO DE JANEIRO, BRAZIL – Brazil’s federal public debt fell 2.89% in March, closing the month at R$5.56 trillion (US$1.1 trillion). The result was published on April 28 by the National Treasury.

According to the National Treasury, the public debt stock showed a reduction of R$165.4 billion in March compared to the previous month. In February, the debt had risen 2.03%, reaching R$5.73 trillion.

The drop in March reflects the net redemption of R$204.7 billion and the positive appropriation of interest of R$39.3 billion on public securities.

According to the General Coordinator of Public Debt Operations at the National Treasury, Luís Felipe Vital, net redemptions resulted from below-average issuances and a high volume of public debt redemptions.

In March, public security issuances, close to R$100 billion per month, totaled R$66.9 billion. Redemptions reached R$271.6 billion, the third-highest in the National Treasury’s historical series.

The National Treasury issues public debt to finance the government’s budget deficit, that is, to cover expenses that exceed the collection of taxes, contributions, and other revenues. It is seen as one of the main references for evaluating the country’s payment capacity by the global agencies that assess investment grades.

HOLDERS

In March, the portion of public debt held by non-residents fell from 10% to 9.4%. The decrease represents a net outflow of R$45.7 billion from non-residents.

Luís Felipe Vital said that this reduction reflects the maturity of a prefixed Treasury bond. “When this security was rolled over, we saw foreigners leave the country. We see it as reasonable and natural because the rollover occurs at the same time that the external scenario is much more negative,” he said.

According to him, the perspective of high interest rates in the United States, the war in Europe, and the advance of the covid-19 confinements in China affect the investment decisions of non-residents. “The participation of non-residents depends not only on the level of interest rates and exchange rates in Brazil but also on the international scenario,” he said.

SECURITIES

According to the National Treasury, March showed a reduction in the participation of floating-rate bonds in the public debt stock. As a result, fixed-rate and inflation-linked bonds increased.

Here is the composition of the debt by type of security:

• floating interest rates: 36.2%;
• linked to price indexes: 31.3%;
• fixed rate: 28.3%;
• foreign exchange: 4.2%.

COST

The average cost of issuing public debt rose from 9.5% per year in February to 10.52% per year in March. But the average cost of the stock of debt fell in the month, from 8.68% per year to 8.59% per year.

According to Vital, the reduction in the average cost of the debt reflects the dollar’s movement on the cost of the external debt, but not the behavior of the internal debt, which represents 96% of the debt stock.

The average cost of the internal federal public securities debt rose from 9.25% per year in February to 9.65% per year in March. It is the highest rate since October 2018 because of the increase in the public securities’ indexers, such as the Selic and inflation.

MATURITIES

The liquidity cushion of the National Treasury fell 16.03% in March, from R$1.3 trillion to R$ 1.1 trillion. The agency also said that R$1.2 trillion of internal federal public securities debt is expected to mature in the next 12 months.

The General Coordinator of Public Debt Operations said that the reduction in the liquidity cushion resulted from the net redemption registered in March. He also said that the reserve “continues at a very comfortable level” and is enough to cover 9.8 months of maturities ahead.

“The Treasury continues to be very comfortable, with a liquidity cushion of over R$1 trillion. It is not only enough for the rest of the year, but it also provides tranquility so that the Treasury does not have to accelerate issuances if it encounters a more negative market moment over the next few months,” he stated.

However, the percentage of the public debt that matures in 12 months fell from 23.36% to 22.4% in the month. With this, the average maturity of the federal public debt rose from 3.86 years in February to 3.97 years in March.

Here are the maturity terms of the public debt:

• up to 12 months: 22.4%;
• 1 to 2 years: 20.4%;
• 2 to 5 years: 34.5%;
• over 5 years: 22,7%.

With information from Poder360

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