Treasury weighs revisions to federal debt financing plan

National Treasury Secretary Daniel Leal told Valor that if it becomes clear the Treasury won’t hit any of the target ranges set out in the Annual Financing Plan (PAF) for Brazil’s federal public debt, it will flag that to the market and make the necessary revisions. The next review cycle is set for August; an ordinary reassessment took place in April, but the PAF wasn’t revised at that time. Brazil posts best dollar flow since 2018 NTN-Bs struggle to find buyers despite 8% yields Treasury warns of tax-exempt bond distortions “If changes are needed, as they have been before, we’ll make them,” Leal said in a Tuesday (8) interview. “We’re still working out which indicator might end up falling short.” He explained that heavier issuance of floating-rate Treasury bills tied to the Selic benchmark rate—known as LFTs—would be “the main factor behind any potential change.” “Whether that means adjusting the target range for LFTs specifically, or for other instruments too, is something we still have to work through,” he said. Under the current PAF, LFTs are supposed to make up between 46% and 50% of the federal debt portfolio. As of May, they stood at 48.99% of outstanding debt. Inflation-linked NTN-B bonds, meanwhile, accounted for 26.2% of the total, within their target range of 23% to 27%. Still, Leal stressed it’s not yet “a lost cause,” and that market conditions bear watching. Amid heightened uncertainty, demand for LFTs has risen because these securities don’t take mark-to-market losses when rates move, while still offering solid returns and a buffer against volatility. With the Treasury sitting on a comfortable cash position, Leal said there’s no pressure to lean on other types of securities right now. As a result, the Treasury has been issuing more LFTs than originally planned at the start of the year, temporarily pulling some indicators outside their target ranges. If the strategy does need adjusting, Leal said, there will be good reason for it. The war in the Middle East, he noted, has driven up risk aversion, put further strain on markets, and shifted expectations around the interest rate easing cycle—all of which have reshaped the environment the Treasury originally planned around. “But we also need to assess, if changes to the PAF become necessary, where we think things will actually land. I see the PAF mainly as a guide to what we consider realistic,” he said. As Valor has previously reported, the recent turbulence in fixed-income markets—which sent yields on NTN-Bs, Brazil’s inflation-linked government bonds, sharply higher—has continued to shape the Treasury’s debt management approach. At Tuesday’s auction, the Treasury again offered only a token amount of NTN-Bs, concentrating its issuance on LFTs instead. Unsurprisingly, the session produced the largest weekly sale of LFTs so far this year—a trend that’s starting to raise eyebrows in the market. Before becoming National Treasury secretary earlier this year, Leal ran the Treasury’s Undersecretariat for Public Debt. After taking that post at the end of 2024, he pushed to strike a better balance in debt issuance, curbing the growth of LFTs’ share of the portfolio and signaling the Treasury’s commitment to improving the debt mix—mainly by ramping up fixed-rate bond issuance whenever market conditions allowed. He cautioned, though, that this is a gradual process that hinges on finding the right market windows. The next big opportunity, he added, should come next year, when a large volume of LFTs is set to mature. Daniel Leal Gabriel Reis/ Valor