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Brazil Forces Some Pension Funds to Pare Floating Debt

Brazil is forcing some retirement funds that hold about 300 billion reais ($147 billion) in assets to shift some of their holdings away from floating rate bonds as the government steps up efforts to create demand for longer term debt.

The so-called open retirement funds, which are private pension plans not associated with a specific company, will have until December 2015 to comply with the new requirements that seek to reduce the weight of floating rate debt holdings, Economic Policy Deputy Secretary Pablo Fonseca said. The funds held 60 percent of their assets in floating rate debt as of March 2012, he said.

The government is implementing measures to foster local long-term debt markets by weaning investors off shorter-term securities and bonds linked to the overnight rate, a legacy of the hyperinflation of the 1990s.

“The measure will lead to a reduction of short term debt in the portfolios,” Fonseca told reporters in Brasilia. “Now is the moment to coordinate changes in the regulation that will lead to an extension” of maturity.

The government is also setting minimum duration requirements for the so-called open pension funds’ portfolios, he said.

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