The National Treasury of Brazil has issued sustainable bonds in dollars, raising a total of $2 billion in the international market – KNfins

The National Treasury of Brazil has issued sustainable bonds in dollars, raising a total of $2 billion in the international market

This is the second time that the Brazilian government has conducted this operation, which aims not only to raise funds but also to strengthen its commitment to sustainable policies and leverage the growing interest from foreign investors in these assets.

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According to information from the Treasury, the yield on the bonds was 6.375%, below the initial reference rate and also lower than that of the first issuance last year. A source with direct knowledge of the matter had previously disclosed this data to Reuters, highlighting the market’s attractiveness and confidence in the Brazilian government’s sustainable initiative.

This procurement strengthens Brazil’s position on the international stage as a responsible issuer committed to practices that promote sustainable development, while also diversifying its funding sources and enhancing its relationships with global investors.

The Treasury had previously announced that the bond issuance, with a maturity until 2032 and a seven-year term, was led by the banks Bank of America, Goldman Sachs, and HSBC. The complete results of the operation will be detailed at the end of the day.

According to the official statement, “the issuance strengthens the important role of foreign debt in extending maturities, diversifying indices, and the investor base.”

The “initial price talk,” the initial price range to gauge investor interest, started at 6.625%, as indicated by unnamed sources. This information was confirmed by another source familiar with the transaction.

Despite recent fluctuations in Brazilian assets, the five-year Credit Default Swap, which assesses country risk, did not show a significant reaction and was traded slightly below the level observed during Brazil’s debut in issuing sustainable government bonds in November 2023.

One source noted that Brazil has been able to issue government bonds with yields comparable to those of Mexico, a developing market with an investment-grade rating, despite lacking such a rating itself. The same expectation was anticipated for this Thursday, the source added.

A second official mentioned that “internal disruptions” have recently unsettled domestic markets but emphasized that foreign investors are more focused on economic fundamentals, which have not suffered major setbacks since last year.

Concerns over potential political interference with the central bank and the government’s challenges in budget consolidation have caused turbulence in financial markets this month, weakening the Brazilian real and raising future interest rates.

After the unanimous decision by the central bank to keep the benchmark interest rate unchanged at 10.50% per year on Wednesday, Brazilian assets opened the session on Thursday in positive territory. However, the Bovespa stock index lost momentum early in the afternoon, while the dollar gained strength against the real.

At the end of May, the Treasury indicated that between 50% and 60% of the proceeds from its next sustainable bonds would be allocated for environmental measures, while 40% to 50% would be earmarked for social spending. This allocation strategy is similar to that of the first sustainable government bonds issued in November, which raised $2 billion.

Additionally, the Brazilian government had already planned an expanded presence in the international bond market for the current year when announcing its annual financing plan.

The government emphasized that the goal is to issue both traditional and sustainable bonds in 2024, with the main aim of developing the government bond curve. This curve will serve as a key reference for the Brazilian corporate sector and provide a solid foundation for future financial operations and investments.

The first issuance of sustainable bonds in November raised $2 billion, with the bonds yielding 6.50% per year. The issuance was regarded as a success by the Brazilian government.

Since then, members of the Finance Ministry have indicated that a new issuance could occur later this year, depending on market conditions.

According to data from the National Treasury as of April, the average maturity of Brazil’s external debt currently stands at 7.07 years, surpassing the 6.78 years recorded at the end of 2023. This extension of average maturity reflects the government’s strategy to lengthen its debt structure to take advantage of favorable market conditions and to reduce risks and costs associated with managing state debt.

This extension of the average maturity of external debt demonstrates Brazil’s strong fiscal policy aimed at achieving a more sustainable and stable financial management. With the success of the first issuance of sustainable bonds and the extension of maturities, the country strengthens its position in international markets and attracts investors interested in responsible environmental and social practices.

As the government continues to explore opportunities in the international bond market, these initiatives not only diversify its funding sources but also create an important reference for the Brazilian corporate sector. This contributes to the development of a robust government bond curve that is critical for future financial operations and investments in the country.

Through a sustainable and strategic approach to debt management, Brazil strengthens its commitment to responsible economic policies and creates a predictable and attractive environment for global investors.

Moreover, the extension of the average maturity of external debt provides the Brazilian government with greater flexibility to address potential volatilities in global financial markets. This is particularly important in a context of economic and geopolitical uncertainties, where the ability to secure long-term financing at competitive rates can be crucial for maintaining the country’s economic and financial stability.

These strategic measures aim not only to optimize public debt costs but also to strengthen Brazil’s resilience to potential external shocks. By bolstering its fiscal and financial position, the country positions itself more solidly to tackle global economic challenges and attract investments that support long-term economic growth.

Picture of Ella Bailey
Ella Bailey

an editor at KNfins since 2024.

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