Brazil to sell debt despite global crisis

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.

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