Brazil Treasury sees debt rising up to 19% in 2026, plans more foreign issuances

By Marcela Ayres

BRASILIA, Jan 28 (Reuters) - Brazil's Treasury expects public debt to grow as much as 19% this year, saying in its annual financing plan that it will boost sovereign bond issuance abroad, including in euro and in Chinese yuan.

The Treasury set a target to close this year with federal public debt between 9.7 trillion and 10.3 trillion reais ($1.86-1.98 trillion), implying a large expansion from the 8.635 trillion reais recorded in 2025, when public debt already widened by 18%.

The government highlighted in the annual financing plan it sees room to increase external bond issuance after raising a record $10.8 billion in 2025 across four global offerings.

Brazil's public debt remains largely denominated in Brazilian reais, with domestic debt accounting for 96.2% of the total and foreign-exchange-linked debt at 3.8%.

The Treasury expects the FX-linked share to rise to as much as 7% in the long run.

Treasury Secretary Rogerio Ceron said the government plans to operate "with more aggressiveness, presence, frequency and intensity, mainly in U.S. dollar issuances."

Speaking at a press conference, Ceron said Brazil also aims to resume euro-denominated offerings, following a 2014 transaction, and launch its first issuance in Chinese yuan this year.

PUBLIC DEBT COMPOSITION

The Treasury said it plans to gradually improve the public debt's composition by increasing the share of fixed-rate bonds and extending maturities.

According to its guidelines, fixed-rate bonds will end the year representing 21% to 25% of total debt, from 22% in 2025.

The Treasury estimated that debt linked to the benchmark Selic interest rate will account for between 46% and 50% of the total this year, after rising to 48.3% last year.

These floating-rate bonds, known as LFTs, tend to be more attractive to investors during periods of elevated risk aversion but expose public debt servicing costs to sharp increases when interest rates rise.

Many market participants expect volatility to intensify this year due to Brazil's October general election.

Brazil's benchmark Selic rate stands at a near 20-year high of 15%, unchanged since July, as the central bank seeks to bring inflation back to its 3% target in an economy that has been slow to show clearer signs of cooling amid government stimulus under President Luiz Inacio Lula da Silva.

Last year began with the Selic at 12.25%, meaning the sharp tightening and the prolonged maintenance of restrictive rates were among the main drivers of the increase in public debt over the last year.

Policymakers are set to announce their next monetary policy decision late on Wednesday, with markets widely expecting another hold.

($1 = 5.2074 reais)