Brazil’s leading investment bankers anticipate a decline in local bond sales this year following a record-breaking 2024, as rising borrowing costs deter companies from issuing new debt. This shift in market dynamics presents both challenges and opportunities for investors seeking yield in the Brazilian fixed-income market.
Experts attribute the anticipated slowdown to several key factors. In 2024, favorable market conditions, including tight spreads and strong investor demand, encouraged companies to issue bonds even if they didn’t have immediate funding needs. “Last year was enormous — the conditions were pretty good, spreads were tight — so companies took the opportunity and sold local bonds even when they didn’t need to,” explains Felipe Wilberg, head of fixed income and structured products at Banco Itau BBA. Consequently, many companies have already secured their financing for the near term, reducing the urgency to tap the bond market in 2025.
Furthermore, the Brazilian central bank’s decision to resume monetary tightening in September 2024, raising the key interest rate by almost three percentage points, has significantly increased borrowing costs. This, coupled with a weaker economic outlook, with GDP growth projected at 2.1% compared to 3.3% in 2024, is making companies more cautious about taking on new debt. The surge in the dollar against the real and climbing interest-rate futures in December, following a less-than-impressive government cost-cutting plan, further exacerbated market uncertainty.
Data compiled by Bloomberg reveals the extent of the shift. Local bond issuance in Brazil reached a staggering 498.2 billion reais ($87 billion) in 2024, nearly double the 2023 total. Itau BBA led the market, underwriting approximately 23% of all issuances. However, in the first few months of 2025, issuance plummeted by 29% to 28.6 billion reais compared to the same period in 2024, reflecting wider spreads and shorter maturities. “We already saw at the end of last year the difficulty of distributing some local bond transactions because of the economic deterioration and the outlook for higher interest rates,” noted Marcelo Marangon, Citigroup Inc.’s CEO for Brazil.
The changing landscape is forcing companies to re-evaluate their financing strategies. Raizen SA, a major sugar and ethanol producer, exemplifies this trend. Facing escalating borrowing costs, the company is exploring asset sales and suspending plans for new plant construction to reduce its debt burden.
While the local bond market cools, experts suggest that mergers and acquisitions, along with debt re-profiling, could stimulate Brazil’s global bond issuance. Brazilian companies issued $29.6 billion in international bonds in 2024, a 57% year-over-year increase, with Citigroup leading as the top underwriter. In early 2025, global bond issuance by Brazilian entities already surpassed $11.7 billion, a 63% jump compared to the same period in 2024. However, access to the global market remains selective, favoring frequent issuers and companies with robust market positions.
In conclusion, the Brazilian bond market is poised for a period of adjustment in 2025. While local bond issuance is expected to decline due to higher borrowing costs and a more cautious corporate outlook, opportunities may arise in global bond markets and through alternative financing strategies such as M&A and debt restructuring. Investors should carefully assess these evolving dynamics to navigate the Brazilian fixed-income landscape effectively.
