June 24, 2020 / 7:09 PM / in 10 days

UPDATE 2-Foreigners' holdings of Brazil bonds falls to 9.1% in May, lowest since 2009

(Adds detail, quote)

By Jamie McGeever and Marcela Ayres

BRASILIA, June 24 (Reuters) - Foreigners cut their holdings of Brazilian sovereign bonds in May to the lowest share since December 2009, official figures showed on Wednesday, even as financial market volatility and investors’ risk aversion subsided.

Non-residents reduced holdings by only 2 billion reais to 367.3 billion reais ($70 billion), almost all in fixed-rate securities. But with public debt rising, foreigners’ overall share of the pie fell to 9.1%.

That brought the total reduction so far this year to 58.5 billion reais. At the start of this year, 10.4% of Brazil’s public debt was held by foreigners.

Luis Felipe Vital, public debt manager at the Treasury, said recent outflows are related to the economic and COVID-19 crises, not rising concern overseas about Brazil’s environmental, social and governance records.

“It’s important not to conflate the two issues,” Vital told reporters in a virtual press conference, adding that the outlook is a bit better now than it was a few months ago. “The worst of the outflow from foreigners is behind us,” he said.

Seven major European investment firms with over $2 trillion of assets under management told Reuters they will divest from Brazil, even sovereign debt, if they do not see progress in resolving the surging destruction of the Amazon rainforest.

Foreigners’ appetite for Brazilian bonds has been falling since the country lost its investment-grade status in 2015, Vital said. An improving fiscal and growth picture and economic reforms will see demand pick up again, he added.

Brazil’s total federal public debt rose 2.17% in May to 4.25 trillion reais from the month before, and domestic securities debt rose 2.26% to 4.03 trillion reais, the Treasury said.

The average cost of servicing the domestic debt load fell to a record-low 7.6% in May from 8.0% the month before, Treasury said.

$1 = 5.27 reais Reporting by Jamie McGeever; Editing by Leslie Adler

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