Brazil’s Debt Market Outlook

By Elisa Martinuzzi and Brad Haynes
DAVOS, Switzerland (Reuters) – Brazil’s debt market is expected to thrive in 2025, with possible equity market activities improving in the second half of the year, according to Flavio Souza, president of Itaú BBA, during discussions at the World Economic Forum in Davos.

In 2024, Brazil witnessed a record debt issuance of 709.2 billion reais ($120.1 billion), marking a 77.5% increase from 2023 and a 55% rise from 2022, the highest since the Brazilian Financial and Capital Markets Association (Anbima) began tracking in 2012.

> “We had a tremendous year (for debt issuances), obviously related to the interest rates market,” stated Souza. He added that debt capital market activity would remain significant despite expected sluggishness in the equity market.

A strong government message on fiscal discipline could enhance market sentiment and nurture equity activities in the latter half of 2025.

Throughout 2024, fiscal concerns and soaring interest rates dissuaded investors from the stock market, shifting interest towards the safer, profitable debt market. Brazil’s benchmark rate finished 2024 at 12.25%, rising from 11.25% in November, with projections of further increases early in 2025.

Despite worries about Brazil’s public debt under leftist President Luiz Inácio Lula da Silva affecting foreign investments, Souza indicated that Brazil’s primary deficit is on par with other major emerging markets.

> “The main challenge we have is the nominal deficit, totally related to the interest rate,” Souza explained.

Brazil’s nominal deficit is projected to reach nearly 8% of GDP, the highest among major emerging economies, mainly due to interest costs.

Souza anticipates significant merger and acquisition activity in 2025, though some deals may face delays due to high key rates. “For the market as a whole, we finished the year with our largest pipeline ever in M&A,” he mentioned, highlighting interest in sectors like energy and education.

He noted that large institutional investors and sovereign funds are keenly observing the Brazilian market, with many seeing an entry point that hasn’t been available in recent years.