After ending 2025 above BRL 8.6 trillion and at a record level, Brazil’s federal public debt is expected to reach between BRL 9.3 trillion and BRL 10.3 trillion by the end of this year. The figures were released this Wednesday (Jan. 28) by the National Treasury, which presented the targets of the Annual Financing Plan for public debt for 2026.

As in the previous year, the government created room to reduce the share of fixed-rate bonds - whose interest rates are defined in advance - and increase the participation of bonds indexed to the Selic rate, the economy’s benchmark interest rate. This strategy would help attract investors to Selic-linked bonds, as the Selic is at its highest level in almost two years.

Composition

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• Brazil’s Central Bank keeps benchmark interest rate at 15% per annum.
• Brazilian economy expected to grow 2.44% in 2026 budget forecast.

According to the document, public debt is expected to end 2026 with the following composition:

• Selic-linked bonds: 46 percent to 50 percent, currently at 48.3 percent;
• Inflation-indexed bonds: 23 percent to 27 percent, currently at 25.9 percent;
• Fixed-rate bonds: 21 percent to 25 percent, currently at 22 percent;
• Exchange rate-linked bonds: 3 percent to 7 percent, currently at 3.8 percent.

These figures do not take into account the Central Bank’s dollar buying and selling operations in the futures market, which affect the results.

Bonds indexed to floating rates increase the risk of public debt because the Selic rate puts more pressure on government debt when basic interest rates rise. When the Central Bank adjusts the rate, the portion of domestic debt indexed to the Selic increases immediately.

In theory, fixed-rate bonds offer more predictability because their interest rates are defined at the time of issuance and do not vary over time. As a result, the Treasury knows exactly how much interest it will pay at maturity, when investors are reimbursed. However, fixed-rate bonds tend to carry higher rates than the Selic rate and can increase the cost of public debt during periods of economic instability.

Reserves

According to the Treasury, the government has two safety mechanisms to guarantee its financing capacity in the event of an economic crisis that prevents the Treasury from issuing bonds in the market. First, the government has sufficient international reserves to cover the maturities of external public debt in 2026, totaling BRL 33.3 billion. In addition, it has a buffer of BRL 1.187 trillion, enough to cover 7.33 months of maturities of domestic public debt.

Through public debt, the National Treasury issues bonds and borrows money from investors to meet its obligations. In return, the government commits to repaying the funds with an adjustment, which may follow the Selic rate, inflation, the exchange rate, or be pre-fixed and defined in advance.