Key facts
- Brazil's Treasury is increasing its reliance on floating-rate debt linked to the Selic interest rate.
- Investors are avoiding longer-dated securities due to global volatility and fiscal concerns.
- The proportion of Selic-linked debt has neared the upper limit of the Treasury's 2026 target range.
- Brazil's federal public debt increased by 2.61% in June to 9.3 trillion reais.
- Selic-linked debt represented 49.32% of the total debt stock in June.
Brazil's Treasury is increasing its reliance on floating-rate debt tied to the benchmark Selic interest rate as investors shun longer-dated securities amid global volatility and persistent fiscal concerns, official data showed. This trend leaves Latin America's largest economy more exposed to high borrowing costs and marks a setback for the Treasury's long-running effort to improve the composition of public debt. The share of Selic-linked securities has already climbed close to the upper end of the Treasury's target range for next year, despite being only halfway through 2026. No major economy relies as heavily on floating-rate debt as Brazil, a structure that helps ensure demand for government securities during periods of market stress but leaves public finances more vulnerable to swings in interest rates. The Selic rate stands at 14.25%, down from a nearly 20-year high of 15% after the central bank began an easing cycle in March, but still among the highest real interest rates in the world. Brazil's federal public debt rose 2.61% in June from the previous month to 9.3 trillion reais ($1.8 trillion), driven by net issuance of 142.3 billion reais and 93.5 billion reais in interest accruals. Selic-linked debt accounted for 49.32% of the total stock in June, up from 48.99% in May and nearing the upper limit of the Treasury's 2026 target range of 46% to 50%. Helano Dias, the Treasury's head of public debt operations, said at a press conference that the government is likely to raise its target range for Selic-linked debt issuance in a revision of its annual financing plan due in September. The Treasury has stepped up issuance of floating-rate bonds, known as LFTs, as investors seek protection from market turbulence fueled by geopolitical tensions in the Middle East and lingering concerns about Brazil's fiscal outlook. Elevated premiums on inflation-linked bonds have also made it harder for the government to sell longer-term securities. Excluding foreign-currency debt, which accounts for about 4% of the total, LFTs made up 71% of issuance in June, the Treasury said. The pattern continued in July, with the securities accounting for 67.8% of issuance through July 28.