Brazil plans to sell $1.5 billion of dollar bonds due in 2025, creating a new benchmark security in international markets, and to buy back notes maturing in as little as four years.
The debt will yield 1.8 percentage points more than similar-maturity U.S. Treasuries, according to a person familiar with the matter who asked not to be identified because terms aren’t set. Proceeds will be used to repurchase as much as $12.6 billion of securities maturing from 2017 to 2030. Banco Bradesco SA, Deutsche Bank AG, and HSBC Holdings Plc are managing the sale, which may take place as soon as today.
Brazil joins emerging-market issuers, from Mexico’s Comision Federal de Electricidad to Russia’s OAO GMK Norilsk Nickel, in selling dollar debt after U.S. lawmakers agreed last week on a deal to end a 16-day government shutdown and extend the nation’s borrowing authority until next year. Brazilian construction firm OAS SA and iron-ore processor Samarco Mineracao SA have issued a total of $1.1 billion of notes since the accord, after a three-week drought in offerings. Sao Paulo-based meatpacker JBS SA sold $1 billion of seven-year securities today at 7.75 percent today.
“From the sovereign’s perspective, they’re trying to clean up a lot of issues in which they’ve done partial buybacks before,” David Bessey, a money manager at Prudential Financial Inc. in Newark, New Jersey, said in a telephone interview. “There are issues out there that because they’re relatively less liquid, they trade cheaply. They’ll try to take those out and at the same time establish a new benchmark.”
Growth, Inflation, Interest Rates
Brazilian borrowing costs have surged this year amid declining growth forecasts, quickening inflation, and speculation that the U.S. will pare back stimulus efforts that have boosted demand for emerging-market assets. Standard & Poor’s lowered the outlook on the country’s BBB credit grade to negative in June amid concern that sluggish expansion and growing government spending could lead to rising debt levels.
Brazil’s dollar bonds pay an average 216 basis points, or 2.16 percentage points, more than Treasuries, compared with 140 basis points at the end of 2012, according to data from JPMorgan Chase & Co. Yields on the country’s $2.15 billion of 2.625 percent 2023 bonds slipped one basis point to 3.89 percent at 3:35 p.m. in New York.
Latin America’s largest economy will expand 2.5 percent this year, according to the median estimate of about 100 economists surveyed by the central bank Oct. 18. Growth slipped to 0.9 percent in 2012 from 2.7 percent in 2011, capping the slowest two years of expansion since 1999, according to data compiled by Bloomberg.
Quickening inflation has prompted policy makers to raise interest rates by 2.25 percentage points this year to 9.5 percent. Consumer-price increases have exceeded the government’s 4.5 percent target for three years.
Brazilian government bonds were caught up in a selloff of emerging-market assets that began in May when U.S. Federal Reserve Chairman Ben S. Bernanke said he may scale back the country’s unprecedented bond buying program. A budget dispute that weighed on fourth-quarter growth will prompt Fed policy makers to wait until March before starting to trim stimulus, a Bloomberg survey showed last week.
The sovereign last sold dollar debt in May, issuing $800 million more of the 2023 bonds, Bloomberg data show.