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Brazil's steep yield curve related to fiscal situation - central bank director

Credit: REUTERS/UESLEI MARCELINO

The steepening Brazilian yield curve, with rising premiums on longer-term debt, is related to the country's current spending level, Brazil's central bank monetary policy director Bruno Serra said on Wednesday in an online event.

By Marcela Ayres

BRASILIA, Oct 14 (Reuters) - The steepening Brazilian yield curve, with rising premiums on longer-term debt, is related to the country's current spending level, Brazil's central bank monetary policy director Bruno Serra said on Wednesday in an online event.

Serra said the need for treasury financing has increased too quickly while usual buyers of long debt securities stopped growing holdings, and even reduced them in size.

Investors have been turning to banks' certificates of deposit instead of traditional government bonds, Serra said.

Still, he added that the redemption of the so-called LFT long-term notes by funds has not been accelerating, suggesting things are calmer than worrying scenarios suggested initially.

The central bank expects investors to return to long-term government bonds if interest rates are attractive, Serra said, ruling out a tax exemption to lure investment funds.

The director said investors used to buy and carry LFTs until maturity, so the secondary market for them used to be illiquid. But investors have started to sell them on worries about Brazil's current fiscal situation, leading to a price distortion.

The difference between short- and long-term rate futures has been widening in recent months, which is seen as a sign of investors' longer-term fiscal concerns about the measures taken to weather the coronavirus crisis.

(Reporting by Marcela Ayres; Writing by Carolina Mandl; Editing by Chizu Nomiyama and Richard Chang)

((carolina.mandl@thomsonreuters.com; +55 11 5644 7703; +55 11 97116-3806;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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