By Marcela Ayres
BRASILIA, Aug 26 (Reuters) – Brazil’s Treasury on Wednesday revealed a worsening public debt profile this year, projecting that the share linked to the benchmark Selic rate could reach a record 53% of the outstanding stock.
With more liabilities tied to floating rates, higher borrowing costs feed directly into debt accumulation.
Although Brazil’s central bank began easing its policy in March, the benchmark rate remains at 14%, while 12-month inflation stood at 4.2% in mid-August, leaving the country with one of the highest real interest rates among major economies.
The new Treasury projection came in its revised annual financing plan, which forecast floating-rate debt at 49%-53% of the total this year, up from a previous projection of 46%-50%. The share grew to 51.1% in July.
Latin America’s largest economy finances an unusually large portion of its debt through floating-rate bonds, a tool designed to maintain investor demand during periods of market stress.
The Treasury has relied more heavily on such instruments amid weak appetite for inflation-linked securities, even while offering real yields above 7% on very long-dated bonds.
“The increase in the share of floating-rate securities in federal public debt reflects a combination of heightened volatility and elevated interest rates, contributing to stronger investor preference for shorter-duration instruments that are less sensitive to interest-rate fluctuations,” the Treasury said in a statement.
It also lowered its forecast for inflation-linked debt to 21%-25% of the total from 23%-27% previously, while the projected share of fixed-rate securities was cut to 20%-24% from 21%-25%. Foreign-exchange-linked debt remained seen at 3%-7%.
The shift comes amid global market turbulence and concerns over Brazil’s fiscal outlook, with gross public debt, the country’s main measure of solvency, reaching 81.9% of GDP, up more than 10 percentage points since President Luiz Inacio Lula da Silva took office.
The updated projections were released alongside July public debt data, which showed the federal debt stock rising 0.22% from the previous month to 9.289 trillion reais ($1.8 trillion).
($1 = 5.1550 reais)
(Reporting by Marcela Ayres; Editing by Fernando Cardoso and Aurora Ellis)
