Brazil eyes Chinese yuan-denominated sovereign bond issue, sources say

By Marcela Ayres

BRASILIA, May 14 (Reuters) - Brazil is considering issuing its first-ever sovereign bonds in China, denominated in yuan, said two government sources with knowledge of the government's plans, noting that a final decision on the so-called panda bonds has not yet been made.

The plan, first reported by local newspaper Folha de S. Paulo, is yet another sign of the efforts by Latin America's largest economy to strengthen ties with China, its top trading partner.

The strategy has gained momentum as U.S. President Donald Trump started a trade war with sweeping tariffs. Brazilian President Luiz Inacio Lula da Silva's visit to Beijing concluded on Wednesday with a wave of Chinese investment announcements and a currency swap agreement between Brazil's central bank and the People's Bank of China.

Brazil's Treasury did not immediately respond to a request for comment.

One of the sources said, on condition of anonymity due to the sensitivity of the matter, that a yuan-denominated sovereign bond would make sense given the expansion of China's financial market, noting that the Treasury routinely evaluates opportunities to issue in currencies besides the U.S. dollar.

"Since no final decision has been made, it's hard to say when this might happen, whether it would be this year, in the near future, or further down the line," the source said.

In its annual financing plan this year, the Treasury emphasized a continued focus on issuing U.S. dollar-denominated bonds to maintain an efficient sovereign yield curve and provide a benchmark for Brazilian corporate issuances.

In February, the country raised $2.5 billion in a fresh 10-year dollar bond.

Some 96% of Brazil's public debt is denominated in Brazilian reais, with the rest mostly in U.S. dollars. The country last issued sovereign debt in a different currency in 2014, when it tapped the euro market.