Brazil Sells $2 Billion Bond As CDS Declines 

This deal was announced around the same time as Brazil’s five-year credit default swap (CDS) declined, which is an important determinant of sovereign risk used by investors to hedge against default.  

Latin America’s largest economy has resorted to drastic measures in light of an impending global recession. For the second time this year, Brazil sold $2.75 billion in dollar-denominated sovereign bonds as international issuance, as it capitalises on declining default risk. 

Reuters reported that the Brazilian government sold $1.5 billion through a new five-year bond, at a 5.68% yield, set to mature in 2030. Additionally, it also sold $1.25 billion with its 10-year benchmark Global 2035 bond at a 6.73% yield. 

This deal was announced around the same time as Rio de Janeiro’s five-year credit default swap (CDS) declined, which is an important determinant of sovereign risk used by investors to hedge against default. Although it rose earlier this year, Brazil’s CDS fell to its lowest in 2025, marking a 27.6% year-to-date decline on Tuesday. The treasury stated that the demand for the new issuance overtook the issued volume by fourfold.  

This dollar bond sale follows the Global 2035 bond, which was reopened on Wednesday, wherein the country’s treasury raised $2.5 billion in a 10-year dollar-denominated sovereign bond. This deal was finalised in February and was aimed at augmenting the treasury’s blueprint of enhancing liquidity in Brazil’s external yield curve. 

This transaction was led by some of the biggest names in banking, like Bradesco, JP Morgan and Morgan Stanley. The issuance is key to external debt in extending maturities, diversifying benchmarks and broadening the investor base, according to the Treasury. It is interesting to note that at the time of the February deal, Brazil’s CDS had improved considerably, dropping more than 20% year-to-date. 

The market climate in Brazil, like all other countries, has been quite uncertain, especially after US President Donald Trump took over the White House. Fiscal concerns and global market uncertainty following Trump’s win resulted in a manic sell-off in Brazilian assets. 

Despite escalating economic tensions, financial analysts have pointed out that drastic shifts in trade policies, including Trump tariffs, have prompted capital to be diverted elsewhere, thereby significantly benefiting emerging markets. This has resulted in the US dollar weakening against other global currencies. 

In Brazil, investors are awaiting the promised structural fiscal reforms, which are currently being discussed in Congress. The government is set to announce the new measures next week, which can help balance public accounts after the proposal to increase the tax on financial transactions, known as the IOF tax, was met with much controversy. 

President Luiz Inacio Lula da Silva’s leftist government has been trying to introduce gradual tax increases to meet fiscal demands, but they have had little success. Last year, da Silva’s administration proposed to increase the social contribution tax, which was never voted on in Congress. The government ultimately lost hope that this increase could generate $2.63 billion in extra revenue. 

The government has been struggling fiscally, and when Finance Minister Fernando Haddad was asked whether there would be another attempt to implement tax changes, he said that since a 90-day waiting period is required before tax hikes can come into effect, it was unlikely that the government would introduce any changes this year. 

However, to make up for these fiscal vacuums, Brazil has had to turn to the international market for bond issuances. In June 2024, the government raised $2 billion in its second sustainable bond issuance. The Treasury had also announced in its 2025 financing plan that it would continue issuing conventional and sustainable sovereign bonds. With this new external issuance, Rio’s Treasury expects to further liquidate the sovereign dollar yield curve, provide pricing references for corporate issuers and raise funds for external debt maturities in advance. Given the demand for these bonds, it is likely that more such issuances will be announced by the end of the financial year.