Bloomberg News

Brazil Rate Cuts to Boost Fixed-Rate Debt Demand, Valle Says

November 01, 2011

Oct. 31 (Bloomberg) -- Brazil’s Treasury expects central bank reductions in the benchmark interest rate to boost demand for fixed-rate and inflation-linked bonds, Deputy Treasury Secretary Paulo Valle said.

The Treasury plans to sell more of such securities to pair the share of floating-rate bonds linked to the overnight target Selic rate, known as LFTs, to less than 20 percent of total debt in 2014 from 31 percent in September, Valle said in an interview. Brazil’s total debt rose 2.3 percent to 1.81 trillion reais ($1.07 trillion) last month.

“In a scenario in which interest rates fall faster and primary surpluses are stronger, it may be easier to reach an optimal composition for the debt,” Valle said in an Oct. 28 telephone interview from Brasilia. “In 2013 and 2014, a significant amount of LFT will mature. It’s an opportunity to reduce the weight of the debt linked to Selic.”

Traders are betting the central bank will reduce the Selic rate to 10 percent by April, as slower economic growth in Europe, the U.S. and China help contain inflation running near a six-year high. Policy makers, led by central bank President Alexandre Tombini, slashed the overnight rate by half a point in each of its past two meetings, bringing it to 11.5 percent.

Valle said the Treasury plans to increase the offering of fixed-rate benchmark bonds, or NTN-F, that are due in 2017 and the in 2021.

--Editors: Andre Soliani, Robert Jameson

To contact the reporter on this story: Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

To contact the editor responsible for this story: Helder Marinho at hmarinho@bloomberg.net


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