UPDATE 2-Brazil's Treasury to issue more short-term bills as risk aversion rises
(Recasts, adds Treasury official quotes)
By Marcela Ayres and Jamie McGeever
BRASILIA, March 25 (Reuters) – Brazil will issue more short-term bills to meet demand from increasingly risk-averse investors, and has put any plans to issue a 20-year bond this year on the back burner due to global market volatility, a senior Treasury official said on Wednesday.
The Treasury may also redraw its 2020 Annual Financing Plan due to the market and economic crisis sparked by the coronavirus outbreak, although this does not necessarily mean it will issue more debt this year.
Speaking to reporters in Brasilia after publication of February’s update of the country’s debt securities market, Luis Felipe Vital, public debt manager at the Treasury, also said the Treasury’s auction process could be changed to a single price from a multiple price system.
“In order to meet the market’s preferences for shorter-dated paper, the Treasury will start to operate from tomorrow (Thursday) with two LFT maturities. One for September 22 (this year) and the other for March 26 (next year),” Vital said.
LFT notes are floating rate bills. Amid the surge in volatility in recent weeks that has pushed rates at the long end of the interest rates futures curve close to 10%, Vital said investors are now clamoring for shorter maturities.
In a summary accompanying February’s update of the country’s debt securities market, the Treasury said “extreme” market volatility this month has hampered price discovery and normal trading activity.
The Treasury said it will continue intervening in the bond market to counter high volatility and ensure the market operates smoothly. It could also alter the date of scheduled debt auctions and announce unscheduled auctions.
“The Treasury will continue carrying out its government bonds repurchase program, acting whenever it sees dysfunctional markets, with the aim of mitigating adverse effects on this and related markets,” it said in its latest monthly report on the debt market.
“During periods of high financial market volatility, the Treasury may hold extraordinary repurchase auctions of government securities to support the smooth functioning of the market,” it added.
The Treasury canceled bond auctions this month due to adverse market conditions and announced it would intervene in the market to provide liquidity and reduce volatility in conjunction with the central bank.
Brazil’s federal public debt rose to 4.281 trillion reais ($856 billion) and the stock of domestic public debt securities rose to 4.057 trillion reais, the Treasury said on Wednesday. (Reporting by Jamie McGeever and Marcela Ayres; Editing by Sandra Maler, Alistair Bell and Diane Craft)
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