Fixed Income Debt Management and Uncertainty in the Lula Administration, 2002–2005

Rogério Sobreira and Paulo Gaya
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Rogério Sobreira: Getulio Vargas Foundation
Paulo Gaya: Brazilian Central Bank

Chapter 12 in Political Economy of Brazil, 2007, pp 194-216 from Palgrave Macmillan

Abstract: Abstract In November 1999, the National Treasury and the Brazilian Central Bank started a programme to change the maturity and profile of the domestic public debt (BACEN/STN, 1999). The aim of this programme was to extend the maturity of the domestic debt and increase the share of fixed income debt in the total debt. These outcomes were achieved only in part. Between early 2000 and late 2001, the maturity of the fixed income debt was extended from 8.5 months to 26 months. The percentage of fixed income debt also increased, in 2000, from 10.2 per cent in January 2000 to 14.8 per cent in December. However, the adverse shocks experienced by the Brazilian economy during 2002 — the devaluation of the Argentine peso, the mark-to-market crisis of Brazilian mutual funds, and the electoral crisis, with the fear of victory of Luiz Inãcio Lula da Silva — increased uncertainty and led to a reduced maturity of the domestic debt. They also led to an increase of the interest rate-indexed securities, which reached 60.8 per cent at the end of 2002, while the share of fixed income bonds decreased sharply to 1.9 per cent in January 2003. After that, good fundamentals helped to restore investor confidence, leading to a recovery of the share of fixed income bonds in the total debt. As a consequence, the share of these bonds increased to 27.9 per cent in December 2005, and 35 per cent in November 2006.

Keywords: Interest Rate; Maturity Date; Secondary Market; Interest Rate Risk; Fixed Income (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1057/9780230390102_12

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