Brazil's Treasury sees larger debt stock this year

By Marcela Ayres

BRASILIA, Sept 30 (Reuters) - Brazil's Treasury expects a larger debt stock this year, reflecting its strategy of frontloading bond sales ahead of expectations for a more volatile environment in 2026, when Latin America's largest economy holds a general election.

In a revision of its Annual Financing Plan, first published in February, the Treasury on Tuesday forecast year-end debt between 8.5 trillion and 8.8 trillion reais ($1.60 trillion to $1.65 trillion), compared with a previous estimate of 8.1 trillion to 8.5 trillion reais.

"That increase reflects the volume of issuance so far, supported by stronger demand for federal government securities," the Treasury said.

In August, the debt stock rose 2.59% from the prior month to 8.145 trillion reais, according to Treasury data released on Tuesday.

With intermediate and long-term rates of the yield curve falling and volatility easing from late 2024 levels, the Treasury said it seized a window to ramp up debt issuance, aligning volumes with market demand and avoiding price pressure.

Public debt chief Daniel Leal said at a press conference that the new debt target falls within a comfortable range, stressing that the 8.8 trillion reais ceiling does not mean that the Treasury will seek or reach that level.

He added that the government is likely to end the year with debt rollover slightly above 100%, after slowing issuance in recent weeks following a more intense start to the year.

In 2027, the Treasury also faces a large maturity of floating-rate bonds linked to the benchmark rate Selic, highlighting the strategic push to issue now under what it sees as better conditions and avoid tougher market dynamics later.

Treasury Secretary Rogerio Ceron told Reuters in July that the Annual Financing Plan could be revised after the government stepped up domestic debt issuance to take advantage of favorable market conditions, while also preparing for expected volatility around the 2026 election.

Ceron argued that Brazil has stood out among peers with a bulk of its debt in local currency and offering high real interest rates.

These factors have drawn strong capital inflows, helping to strengthen the currency BRBY more than 13% so far this year, spurring corporate fundraising, boosting foreign participation in public debt, and lifting equity prices.

Amid improved market conditions, the Treasury carried out three external bond sales this year, and a fourth, focused on sustainable debt, may take place by year-end, Leal said during the press conference.

($1 = 5.3253 reais)