BRASILIA, (Reuters) – Brazil plans to tap foreign debt markets before year-end despite the global financial turmoil, the country’s treasury secretary told Reuters.
The worsening global outlook has caught up with Latin America’s largest economy this month, battering Brazil’s equity and currency markets. The central bank also revised its 2011 growth projections downward to 3.5 percent this week.
Still, the government expects the debt sale to showcase Brazil’s strong fundamentals at a time when many fear the global economy could slip back into recession.
“The fact we’re in a crisis reinforces the importance for Brazil to prove its fundamentals,” Arno Augustin said in an interview on Friday in Brasilia.
The yield spread, or difference, between 5-year Brazilian global bonds and 5-year U.S. Treasuries fell to 214.8 basis points on Friday from a two-year high of 221.9 basis points on Sept. 23, a sign that Brazilian debt is being considered less risky compared with U.S. debt than it was previously.
IT’S ALL ABOUT THE CURVE
Brazil’s objective was not to raise capital or to capture foreign currency, but to broaden Brazil’s yield curve, Augustin said.
“The issue has the sole purpose of shaping a good curve for the country so that the companies have a good reference.”
A yield curve is a measure of market borrowing costs for Brazilian debt issuers over time.
Brazil’s yield curve runs from about 1.53 percent a year in dollars for debt maturing in two years to 5.12 percent a year for 30-year debt, based on the yields of the country’s global bonds.
Through 2030, Brazil has at least one large international bond in dollars maturing every year except 2023, 2026 and 2029, allowing investors and companies to set a benchmark for borrowing. As companies and individuals are believed to be higher-risk borrowers than the government, they usually pay the rate expressed by the curve plus a premium.