Key facts
- Brazil's Treasury projects debt linked to the Selic rate could reach a record 53% of total outstanding stock this year.
- The previous forecast for floating-rate debt was 46%-50%, with the share already at 51.1% in July.
- The country finances a large portion of its debt through floating-rate bonds due to market stress and weak appetite for inflation-linked securities.
- Brazil's gross public debt stands at 81.9% of GDP.
- Federal debt stock increased to 9.289 trillion reais in July.
Brazil's Treasury has revised its annual financing plan, projecting a record high of 53% for debt linked to the benchmark Selic interest rate by the end of the year. This indicates a worsening public debt profile, with higher borrowing costs directly contributing to debt accumulation due to the significant portion of liabilities tied to floating rates.
The Treasury's updated forecast for floating-rate debt now stands at 49%-53% of the total, an increase from the previous projection of 46%-50%. This shift is attributed to heightened market volatility and elevated interest rates, which have led investors to favor shorter-duration instruments less sensitive to interest-rate fluctuations. Consequently, the forecast for inflation-linked debt was lowered to 21%-25%, and fixed-rate securities to 20%-24%.
Latin America's largest economy typically finances a substantial part of its debt through floating-rate bonds, a strategy to maintain investor demand during market stress. However, the Treasury has increasingly relied on these instruments amid weaker demand for inflation-linked securities, even while offering attractive real yields on long-dated bonds.
These projections coincide with global market turbulence and concerns about Brazil's fiscal outlook. The country's gross public debt has reached 81.9% of GDP, a notable increase since President Luiz Inacio Lula da Silva assumed office. Public debt data for July showed the federal debt stock rising by 0.22% from the previous month to 9.289 trillion reais ($1.8 trillion).