Brazil’s public debt rises 2.5% in June, interest rates keep soaring

BRASILIA (Reuters) -Brazil’s federal public debt grew 2.51% in June from the month before, and the average cost of domestic debt issuance kept soaring amid greater risk aversion, the Treasury said on Wednesday.

The debt stock reached 5.846 trillion reais ($1.10 trillion), mainly driven by the increase of 76 billion reais in interest amid higher debt servicing costs, while net issuance of domestic debt reached 67.3 billion reais, its lowest value for the month since 2018.

According to the Treasury, the average interest rate on the domestic federal debt rose to 12.0% from 11.69% in May, its highest level since May 2017, in the face of a new appreciation in interest rate bonds.

The central bank has already raised its benchmark interest rate to 13.25% from a 2% record-low in March last year, penciling in another hike for next week to curb inflation.

In a statement, the Treasury acknowledged that rates had risen further in July.

“Over the month, the domestic yield curve has sharpened and steepened,” it said, adding that the long part of the curve rose by 50 to 60 basis points.

In addition to the troubled external environment, marked by fears of recession and monetary tightening in major economies, the increase in risk levels came after Congress cracked open a constitutional spending cap to allow a burst of election-year expenditures.

Despite the situation, the Treasury stressed that its liquidity reserve rose to 1.221 trillion reais ($230.80 billion) in June, having been fueled throughout the semester by central bank results from last year, untying of resources from public funds and additional dividends from development bank BNDES.

Such events totaled 139 billion reais, exceeding the financial effect of lower emissions due to market volatility, said the Treasury, highlighting “it sees no reason” to change its financing strategy.

($1 = 5.2902 reais)

(Reporting by Marcela Ayres; Editing by Sandra Maler)