Foreigners’ share of Brazil’s public debt falls to its lowest level in more than 12 years

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(Recast with information on the foreign share in the public debt)

BRASILIA, September 28 (Reuters) –

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Foreign investors’ share of Brazil’s public debt fell in August to its lowest level in more than 12 years, official data showed on Wednesday, despite high government bond yields.

According to the Treasury, foreigners’ share of domestic public debt fell to 8.84% in August from 9.01% in July, the lowest level since December 2009.

This came despite high government bond yields amid aggressive monetary tightening to fight inflation in Latin America’s largest economy.

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The central bank decided last week to pause its rate-hike cycle after 12 hikes took the benchmark Selic interest rate to 13.75% from a record low of 2% in March 2021.

Luis Felipe Vital, head of public debt operations at the Treasury, said the drop in global liquidity is hampering flows to emerging countries and, therefore, to Brazil.

The decline in foreign public debt holdings contrasted with the high volumes of foreign direct investment in the country, which includes non-residents’ equity in companies and inter-company loans.

According to the Treasury, Brazil’s federal public debt fell 0.4% in August from the previous month, the second consecutive month in which bond redemptions exceeded government issuances.

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Public debt reached 5,781 billion reais ($1,090 billion), affected by a net repayment of 56.62 billion reais and interest payments of 33.60 billion reais.

The Treasury’s liquidity reserve, which allows it to have greater freedom in debt management in the face of market volatility, fell by 2.69%, to 1,146 billion reais.

But the government stressed that the amount guarantees payment for the next ten months.

In August, the average interest rate on domestic federal debt fell to 11.9% from 12.1% in July as inflation eased and lowered inflation-linked bond rates.

Brazil posted deflation in August for the second consecutive month, mainly due to government measures to reduce taxes on key prices, such as fuel and energy. ($1 = 5.3281 reais) (Reporting by Marcela Ayres Editing by Chris Reese and Chizu Nomiyama)