Prices paid by the National Treasury to borrow new money have risen 71% this year as investors are demanding more because of concerns about inflation, public accounts and the government’s proposal to circumvent the spending ceiling.
The increase in rates has accelerated since Minister Paulo Guedes (Economy) mentioned a meteor of unforeseen expenses.
The declaration, on July 30, referred to precatório — state debts recognized by the courts and which the government is trying to stop paying in full in 2022 to make room for other expenses.
Since Guedes mentioned the meteor and kicked off the discussion of precatório, the rise in rates of new emissions has risen 29% (in just over three months).
Rates on the day before the declaration had been 9.3% per year. In the most recent auctions, they reached the 12% mark — the highest since 2018.
The numbers are observed in the bond indicated by the Treasury to verify the market’s long-term expectations, the NTN-F (National Treasury Notes, series F) with a ten-year maturity. The other papers also show an increase in the period.
The increase is directly linked to information on public accounts, according to the Treasury itself.
“We had an expressive movement in interest rates, with a considerable increase. It basically translates fiscal news, which is intense and with many uncertainties,” stated the general coordinator of Public Debt Operations, Luis Felipe Vital, in a recent interview about the numbers.
The turmoil intensified last month with the government’s initiative to change the correction of the spending ceiling (which limits the increase in spending) and with Guedes’ indication that he could ask for a license to break the constitutional rule in order to meet the demands of the political class.
The dribble in the spending ceiling caused a stampede in Guedes’ team.
Four secretaries resigned shortly after the maneuver was presented to Congress, including the heads of the National Treasury and the Special Secretariat of Treasury and Budget.
The measures under discussion were also reflected in other indicators. Since Guedes mentioned the meteor, the stock market has fallen 16% and the real has fallen 9% against the dollar.
The CDS (Credit Default Swap, country risk indicator) in Brazil increased by 10.8% during the last week of October compared to the previous month, reaching the value of 228 points.
Meanwhile, all the other countries monitored by the Treasury have improved — they are Chile (down 4.2% to 84 points), Mexico (down 6.1% to 95), Colombia (9% down to 84 points). 153) and Peru (down 19.9% ​​to 84).
As a consequence of the market’s mood, the Treasury had to adjust auctions, reducing lots in some cases so as not to pay so much and wait for moments of greater market stability.
Cristiano Corrêa, finance professor and coordinator of the administration course at the Ibmec business school, said that the market is reacting to the uncertainty of the Brazilian fiscal imbroglio and also to the fears that the non-payment of court orders arouses in relation to other government commitments — such as the public debt itself.
“We realize that the market demands the government’s inefficiency in solving the impasse in the spending ceiling and injunctions,” he said. “The investor’s fear is that this [não pagamento] open doors to happen in other spheres,” he said.
Fernando Hadba, responsible for the fixed income area of ​​financial analysis firm Eleven Financial, pointed out a set of factors influencing rates. Among them, expectations of higher inflation and interest rates, which are fueled by the forecast of more expenses generated by measures such as the PEC for court orders.
“The commitment to be austere with lower inflation has lost some of its credibility. How do I react? Oh, now you [governo] Do you want to issue another fixed income bond? Me [investidor] I only accept with the highest interest rate,” he said.
Despite the rate growth, Habda said the numbers indicate that the market would be expecting an average annual inflation above 6% for the next ten years — which indicates, in part, an exaggeration in the pricing of the shares.
“There is uncertainty, and in uncertainty people demand a bigger premium. Sometimes they exaggerate,” he said.
The increase in bond auctions contributed to raising the average cost of the Treasury debt as a whole, which reached 7.79% per year in September. The total federal public debt in stock is R$5.4 trillion.
When contacted, the Treasury mentioned that there are a number of factors driving rates up, but cited three reasons in particular.
The first is the rise in interest rates in several economies to contain inflationary pressures. The second is the increase in the monetary policy hike cycle specifically in Brazil. And the third is the discussions on the expansion of fiscal policy in the country, with an impact on investors’ expectations.
“In recent months, there has been an upward trend in interest rates along the entire curve of federal pubic bonds, reflecting an increase in auction rates and in average debt cost statistics,” stated the Treasury.
“The National Treasury permanently monitors the public bond market and has the flexibility to adjust its performance in times of greater volatility, with emphasis on its policy of maintaining cash availability (the debt cushion) at comfortable amounts,” he said.
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