In the perfect storm for the National Treasury, NTN-B bond issuances fall to their lowest level in 20 years.

With NTN-B yields at historic highs, the National Treasury has never had so much difficulty issuing inflation-linked government bonds . As of Thursday, July 23rd, the government had already issued R$ 130.8 billion in bonds for the month, with only 1.64% of that total in the form of NTN-Bs, as these bonds, in which the government pays a premium above inflation, are known.

According to Treasury data, the majority was in LFTs (Treasury Bills), fully linked to the Selic rate, which accounted for 58.8% of issuances, followed by fixed-rate LTNs (National Treasury Notes) and NTN-Fs (National Treasury Notes - Fixed-Rate), which accounted for 31.7% and 7.8% of issuances up to that date, respectively.

The percentage of NTN-Bs issued in July — the aforementioned 1.64% — is the lowest recorded by the Treasury since 2006, according to a survey by NeoFeed based on the agency's auction history.

The bond, which began being issued in 2003, only had a smaller monthly share between 2003 and 2006, the initial period of formation of this market. The exception was June 2018, when the government suspended auctions of NTN-Bs, LTNs, and NTN-Fs due to the truckers' strike.

In June of this year, when the Treasury even canceled an NTN-B auction, the percentage of debt issued via this instrument was 3.97% — R$ 5.97 billion out of a total of R$ 150.26 billion sold that month.

In the year to date, the volume of NTN-Bs issued totals R$ 91.13 billion, equivalent to 9.36% of the total issued by the Treasury up to July 23. This is one of the lowest percentages in the historical series: since 2007, when the NTN-B market was already mature, only the accumulated figures from January to July 2018 (8.37%) and 2024 (9.13%) were lower than that recorded this year.

The drop in issued volumes combines cyclical and structural effects, according to economists and managers consulted by NeoFeed . And it is not expected to have an easy solution in the short term.

From a short-term perspective, fiscal concerns and higher global real interest rates remain an obstacle, leading investors to demand more to lend to the government.

This month, the Treasury offered the highest rates in history for its 10-year NTN-B bond issuances, reaching 8% for the first time. At the end of June, the 3-year NTN-B issuance reached 8.56%.

"If you consider a long-term interest rate, a real interest rate of around 8% is not sustainable," says Marcelo Mello, CEO of SulAmérica Investimentos.

According to him, although rates are already at a tight level, it is still difficult to imagine the real interest rate going to 9% or 10% — and the most likely scenario, in the executive's assessment, is for the Treasury to continue issuing more Selic-linked and shorter-term fixed-rate bonds.

Felipe Tavares, chief economist at BGC, sees a risk of the scenario worsening if the Treasury tries to force the issuance of NTN-Bs. "We don't know where it might end. It may be that [the premium] has reached its ceiling, but if it reaches its ceiling, it means that the market will remain at that level, without any depth, without the Treasury being able to issue any," he says.

According to him, this risk is fueled by the Treasury's own response to the lack of demand. "Every time the Treasury shortens the debt maturity, or makes its composition increasingly concentrated in LFTs (Treasury Bills), managing that debt becomes much more challenging. In the post-fixed rate scenario, you become totally passive and exposed to monetary policy," says Felipe. "This puts pressure on the rate again. It's a snowball effect."

Beyond the fiscal scenario

According to Luís Otávio Leal, chief economist at G5, the Treasury is facing a "perfect storm" in the NTN-B market, with the negative economic climate adding to structural factors. Among these are traditional buyers in this market who have less money or are already saturated after the strong issuances of last year.

“The Treasury made several very large issuances of NTN-Bs last year. This ended up saturating investors who are normally captive to this market, such as insurance companies and pension funds,” says Leal.

In 2025, the Treasury issued R$ 312 billion in NTN-Bs. By the same period last year, NTN-B issuances had already reached R$ 202 billion, more than double the R$ 91.1 billion raised by the Treasury through this instrument in the year to date.

According to Leal, these entities already purchased, in last year's large issuances, enough volume to cover their allocation needs for a considerable time, which keeps them out of the market even with a historically attractive rate. "The Treasury pressured the market last year, and now it's having difficulty placing new NTN-B issuances," he comments.

Gabriel Leal de Barros , chief economist at ARX Investimentos, also highlights the shrinking of the multi-market fund industry, a traditional buyer in this market, which has accumulated R$ 610 billion in net withdrawals since 2021, according to data from Anbima.

"A large portion of this money went to incentivized bonds , which reached an extraordinary size and are producing distortions," says Barros.

Since investors don't receive the same tax exemption when buying NTN-B bonds, many prefer to switch to incentivized bonds, even with the credit risk embedded in these private securities. At the peak of this demand, incentivized bonds were even issued at a lower cost than the government itself pays for NTN-B bonds.

After a weaker start to the year in the incentivized debenture market, with fund redemptions following difficulties with credit availability, Huang Seen, head of fixed income at Tivio Capital, says that a higher volume of issuances in the pipeline may be hindering Treasury issuances.

"This also adds a bit more pressure, as if it were competition with government bonds, in terms of fundraising, in terms of demand," says Seen.

In addition to these factors, there is also the impact of the IOF tax on private pension contributions, a measure that began to apply at the end of last year to amounts exceeding R$ 600,000 in open-ended pension plans.

According to Mello, from SulAmérica, this significantly affected the fundraising of these funds, another traditional buyer of NTN-Bs. "So, in addition to the government not raising funds because there was no cash flow, it lost the potential buyer of NTN-Bs."

Amid the greatest difficulty in 20 years in issuing NTN-B bonds in the domestic market, the National Treasury sent a request to the Senate to expand its fundraising opportunities abroad.

In the proposal, filed on July 24, the Executive branch proposes replacing the current cumulative ceiling of US$100 billion for external emissions—which is practically exhausted—with an annual allowance of US$35 billion, an amount that would be renewed each calendar year instead of requiring new authorization from Congress whenever the limit approaches its end.

This year, the Treasury had already raised US$4.5 billion in the foreign market in February, with the issuance of the Global 2036 bond and the reopening of the 30-year Global 2056 bond.

The 2026 Annual Financing Plan also signaled the intention to reopen a benchmark yield curve in euros and assess conditions for an initial issuance in yuan—the so-called “panda bonds”—expanding currency diversification in external debt. Currently, the country's domestic debt is R$ 8.692 trillion against an external debt of R$ 340.49 billion.

According to Barros, from ARX, the search for increased foreign currency emissions is a symptom of domestic difficulties, but of limited scope. "The size of these emissions is very small; it's not a game changer ." He argues that the external channel will only gain weight if fiscal adjustment doesn't come after the elections. "If we don't have a change in fiscal direction from 2027 onwards and continue with these emissions, then yes, there could be problems."

Seen, from Tivio Capital, sees less risk in the account, as it is a net creditor in foreign currency. "Considering this lack of appetite from local investors and the greater appetite from foreign investors, perhaps yes, it is an alternative."

According to data from the Central Bank, the country's international reserves stand at US$368.9 billion—more than five times greater than its external debt. On the other hand, growing too rapidly could transform today's relief into tomorrow's old problem.