Top Brazil Hedge Funds Seek Shelter From Renewed Fiscal Drama

Legacy, SPX, Adam funds are snapping up inflation-linked bonds
Investors wary of government’s spending spree before election

A worker prepares to refuel a vehicle at a Petroleo Brasileiro SA (Petrobras) gas station in Rio de Janeiro, Brazil, on Friday, April 8, 2022.
Photographer: Andre Borges/Bloomberg

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By Vinicius Andrade and Felipe Saturnino

June 8, 2022 at 4:34 PM UTC

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Brazil’s top hedge fund managers are piling into inflation-linked bonds, worried that the government’s bid to reduce fuel prices will worsen the nation’s fiscal outlook and end up keeping consumer prices high for longer.

Firms including Legacy Capital and MAG Investimentos have boosted their holdings of so-called NTN-B bonds -- which pay a fixed interest rate plus inflation -- over the past weeks to cover for the risk of President Jair Bolsonaro’s administration stepping up public spending to boost his popularity ahead of the October election. That’s a trade that was also touted by Adam Capital, Ibiuna Investimentos and SPX Capital over the past month.