Thursday, September 2, 2010

Lula May Offer Real-Linked Bonds Overseas as Yields Tumble: Brazil Credit

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By Ye Xie and Veronica Navarro Espinosa

Brazil is considering selling its first real-linked bonds in international markets in three years as yields on the securities fall to the lowest since May relative to local debt.

The government’s international real bonds maturing in 2022 yield 250 basis points, or 2.5 percentage points, less than its domestic real debt maturing in 2021, according to data compiled by Bloomberg. The difference was 184 basis points on July 1. Deputy Treasury Secretary Paulo Valle said yesterday that it’s “very probable” the government will sell foreign bonds denominated in either reais or dollars by year-end.

The yield gap between local and foreign real bonds is widening as international investors seeking alternatives to near-record low rates in the U.S., Japan and Europe pile into Brazil’s real debt issued in overseas markets. Foreigners prefer to buy the international securities because they can trade them more easily and don’t have to pay local taxes, according to Morgan Stanley.

“It’s a fantastic opportunity to issue debt in your own currency in the external market now,” saidSilvia Marengo, who manages Latin American debt with Falcon Private Bank in Zurich. “It makes a lot of sense from the government’s perspective.”

Lula May Offer Real-Linked Bonds Overseas as Yields Tumble: Brazil Credit

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