Brazil Treasury Buys Back 14.8 Billion Reais in Bonds Amid Market Turmoil
Key Facts
Brazil’s National Treasury carried out bond buybacks totaling about 14.8 billion Brazilian reais on 26 October, including about 7.7 billion reais in inflation-linked bonds, Reuters reported, citing the Treasury. The operations came as Brazilian markets saw sharp turmoil following the presidential election. On the same day, the Treasury canceled auctions of fixed-rate and inflation-linked bonds scheduled for the week. It initially kept an auction of “LFT” bonds linked to the benchmark interest rate, scheduled for 27 October. It canceled that auction the following day and announced a buyback of inflation-linked “NTN-B” bonds.
The measures show that the Treasury used more than one tool to address the market: it canceled planned bond sales while buying bonds in the market. Its purchases of inflation-linked bonds totaled about 7.7 billion reais, as part of an overall intervention of about 14.8 billion reais on 26 October. In its statement, the Treasury said it “will continue to monitor market conditions and work to ensure the smooth functioning of the government bond market and other related assets.” The auction of “LFT” bonds linked to the “Selic” interest rate was initially still listed before being canceled the following day.
The moves followed the re-election of Luiz Inácio Lula da Silva in the runoff on 25 October. He won 51.8% of the vote and led Flávio Bolsonaro by about 4.4 million votes, according to results announced by Brazil’s electoral court and reported by the Associated Press. Before the runoff, Brazilian stocks had closed on Friday about 7% above their level before the first round, while the real was about 5% stronger against the dollar, Reuters reported. But repricing after the result sent markets into a sharp swing. Reuters reported that the Ibovespa fell 10% on Monday and the Brazilian currency weakened about 12% against the dollar. The government bond maturing in 2056 also lost nearly 3 cents per dollar.
An official at Criteria said some of Monday’s market decline may reflect the “rapid unwinding of positions” after an election result that defied investors’ expectations, rather than a comparable deterioration in economic fundamentals. Fiscal concerns center on the next government’s ability to slow debt growth while protecting social programs and investment. Reuters wrote that this task stretches over the next four years, and that a lack of confidence in Lula’s ability to achieve it could lead lenders to demand higher interest rates. Bond-market stability is therefore also tied to the clarity of fiscal policy, alongside the Treasury’s operational measures in the market. Finance Minister Dario Durigan said he had stressed to Lula the need to send investors a positive signal, adding that the government has measures ready to announce.
The next signals investors are watching include the names of the economic team, the text of the 2027 budget and any proposals to amend the fiscal framework. They are also monitoring the tone of the “Copom” monetary policy committee’s statement in November and revisions to exchange-rate and “Selic” rate forecasts, according to Investing.com Brazil. Trading Economics reported that the appointment of the next finance minister will be a key signal of the direction of fiscal policy. The Treasury said it would continue to monitor market conditions and act to ensure the smooth functioning of the government bond market and related assets. The significance of the interventions will become clearer as decisions on the economic team, budget and fiscal framework emerge.