Treasury raises $4.5 billion abroad with higher interest rates

Brazil’s National Treasury raised $4.5 billion from international investors with higher interest rates than in previous releases. The money came from the Monday (Jan. 22) launch of $2.25 billion in foreign debt bonds maturing in 2034 plus $2.25 billion in papers maturing in 2054.

The rate obtained on the issue of ten-year bonds amounted to 6.35 percent a year. In the last issue of this type of paper, in April last year, the yield stood at 6.15 percent a year. Despite the surge, Treasury sources said the rates were lower than expected, at 6.5 percent a year.

For 30-year bonds, the rate was 7.15 percent a year. In the most recent issue, in June 2021, the interest reached 4.925 percent a year. In this case, the hike was mainly due to interest rates in the US, which in 2021 were at the lowest level in history due to the economic stimulus granted during the COVID-19 pandemic.

Benchmark interest rates in the US began to rise in 2022, and since July of last year have been stable from 5.25 to 5.5 percent a year. As the final rate for Brazilian bonds abroad depends on the yield of US bonds—considered the safest investments in the world—plus a risk premium, interest rates for Brazilian bonds have also grown.

Low interest rates indicate that investors have little confidence that Brazil will not be able to repay its debt. At times of economic crisis and rising foreign rates—which is the case now—foreigners have started charging higher interest rates to buy Brazilian bonds.

By issuing foreign debt bonds, the government borrows money from international investors with the commitment to repay the funds with interest. This means that Brazil will pay back the money in several years’ time at the agreed interest rate of 6.35 percent a year for bonds maturing in ten years’ time and 7.15 percent a year for bonds maturing in 30 years’ time.

The funds raised abroad will be added to the nation’s international reserves on January 29. According to the National Treasury, the main purpose of issuing bonds abroad is not to strengthen the country’s foreign exchange reserves, but to provide a benchmark for Brazilian companies wishing to raise funds on the international financial market.