Brazil Sells First Overseas Real Bonds Since '07 After Raising Local Tax
Brazil sold 1 billion reais ($597 million) of bonds due in 2028 in its first offering of local currency debt in international markets since 2007.
The government sold more of its 10.25 percent securities to yield 8.85 percent, the Treasury said in an e-mailed statement. Barclays Plc and Deutsche Bank AG arranged the sale, which was increased from an initial 750 million reais, said a person familiar with the offering, who declined to be identified because of company policies.
Brazil joins Colombia, Chile and the Philippines in selling local currency debt abroad this year as record-low interest rates in the U.S., Europe and Japan fuel demand for higher- yielding securities. Emerging-market bonds denominated in local currencies have rallied 17.5 percent this year after a 22 percent gain in 2009, according to JPMorgan Chase & Co.’s GBI-EM Global Diversified Index.
Brazil looks “to issue opportunistically,” said Sara Zervos, who helps oversee $11.5 billion in emerging-market assets at Oppenheimer Funds Inc. in New York. “They are very savvy in terms of timing the issuance.”
The government sold the bonds two days after it boosted a tax on foreigners’ purchases of local fixed-income assets for the second time this month to curb gains in the currency. The real bonds in the international markets have outperformed the local debt this month as the tax increases bolstered demand for the overseas securities.
“The government is seeking to fulfill the large demand opportunistically, given the nervousness about additional measures that could affect the demand for the local bonds,” Zervos said. “This is a way to have Brazil exposure without going to the local markets and pay the tax.”
The yields on the real-linked securities due in 2028 rose 14 basis points, or 0.14 percentage point, to 8.83 percent today.
The yield has declined seven basis points since Oct. 4, when Brazil doubled the tax on local bonds to 4 percent. Yields on bonds due in 2021, the longest maturity in the domestic market, rose 10 basis points during the period to 11.96 percent.
Brazil further boosted the tax on local bonds to 6 percent from 4 percent on Oct. 18 in an effort to curb the real’s 38 percent rally since the end of 2008.
Brazil last sold real-linked bonds overseas in 2007, when it issued about $1.9 billion of the securities due in 2028, according to data compiled by Bloomberg. The yield fell to a three-year low of 8.6 percent on Oct. 14.
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