Selic-linked public debt hits 20-year high amid fiscal pressure

This delicate fiscal dynamic is not an isolated event, but rather the culmination of a sequence of structural deteriorations that the Clareza Capital portal has been systematically recording. Recently, we analyzed how Lula's plan maintains spending and pressures the exchange rate amid fiscal warnings, a clear sign that the capital market had already been pricing in the absence of a credible fiscal anchor. From the perspective of credit and liquidity cycles, Brazil is in a phase of monetary tightening and reduced global risk appetite. When international liquidity contracts and local doubts about debt sustainability increase, capital flows migrate to ultra-short-term assets, requiring the public issuer to shorten maturity terms and increase floating indexation to manage to roll over its commitments without suffering a technical default.

The causes of this shortening and excessive indexation lie in the lack of confidence in the long-term trajectory of government expenditures. With the Selic target rate maintained at the restrictive level of 14.00% per year — unchanged over the last 30 days —, the real cost of carrying Brazil's public debt becomes one of the highest on the planet. Each increase or prolonged maintenance of this 14.00% level instantly makes new bonds issued by the Treasury more expensive, feeding back into the nominal public sector deficit. The imminent risk is the so-called "snowball effect": the more the government issues Selic-linked bonds to appease creditors in the short term, the greater its vulnerability to future interest rate shocks becomes, creating a vicious circle where the very need for financing prevents the structural fall of interest rates.

For the coming months, asset behavior will depend directly on signals of spending cuts by the federal government. Over a 30-day horizon, it is projected that the commercial dollar will continue to fluctuate within the R$ 5.15 to R$