Tuesday, 6 January 2009

Brazil to Sell Ten-Year Bonds. Why?

The Brazilian National Treasury announced a few minutes ago that it had given a mandate to banks (it doesn't mention them) to sell dollar-denominated debt maturing in 2019. The sale will be aimed at investors in the U.S. and Europe, and it might be tapped by Asian investors tomorrow when their markets open again. We will go back to you with further details on the issue.

The question left is, why a country with such abundant dollar reserves and an apparently-huge cash cushion wants to sell debt at this very moment? This decision stems from an apparent-too recovery in risk-taking (read the post we just moved below.) But, do you have to anticipate this recovery by going to the market in such a narrow window of opportunity and agree to pay high coupons to lure investors?
There is another aspect we ought to take into account. Finance Minister Guido Mantega (photo, left), whose crazy idea of creating a sovereign wealth fund for Brazil has angered congress leaders and economists around the country, may be taking a chance to sell the debt to finance the SWF. Remember that President Lula (at the behest of Mantega probably) last week circumvented a restriction imposed by Congress on the financing of it, ordering the sale of local debt to fund the SWF. Mantega might be anticipating the defeat of such initiative in Congress and rushing to obtain money for the fund. Spreading Brazil's wealth by taking in on more debt ... this is a bizarre world these days ...

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