Foreigners' share in Brazilian public debt falls to lowest level in more than 12 years

BRASILIA, Sept 28 (Reuters) -

The share of foreign investors in Brazilian public debt fell in August to the lowest level in more than 12 years, official data showed on Wednesday, despite high yields on government bonds.

According to the Treasury, the share of foreigners in domestic public debt fell to 8.84% in August, from 9.01% in July, the lowest level since December 2009.

This occurred despite high yields in government bonds amid an aggressive monetary tightening to battle inflation in Latin America's largest economy.

The central bank decided last week to pause its rate-hike cycle after 12 increases that put the benchmark Selic interest rate at 13.75% from a 2% record-low in March 2021.

Luis Felipe Vital, the Treasury's head of Public Debt Operations, stated that lower global liquidity hinders inflows to emerging countries and, consequently, to Brazil.

The decline in foreign public debt holdings has contrasted with high volumes of foreign direct investment in the country, which includes equities of non-residents in enterprises and intercompany lendings.

According to the Treasury, Brazil's federal public debt fell 0.4% in August from the month before, the second straight month in which bond redemptions outstripped government issuances.

Public debt reached 5.781 trillion reais ($1.09 trillion), affected by a net redemption of 56.62 billion reais and interest payments of 33.60 billion reais.

The Treasury's liquidity reserve, which allows it to have greater freedom in debt management amid market volatility, fell 2.69%, to 1.146 trillion reais.

But the government emphasized that the amount guarantees payment for the next ten months.

In August, the average interest rate on the domestic federal debt dropped to 11.9% from 12.1% in July, with inflation easing lowering rates on inflation-linked bonds.

Brazil posted deflation in August for the second month in a row, mainly due to government measures to cut taxes on key prices, such as fuel and energy. ($1 = 5.3281 reais) (Reporting by Marcela Ayres Editing by Chris Reese and Chizu Nomiyama)