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National Treasury Strategy Aims to Contain Strong Pressure Generated by Competition with Tax-Free Infrastructure Debentures and Fiscal Uncertainties, in a Move That the Financial Market Nicknamed “White Cancellation”.
The Treasury decided to hit the brakes and reduce the supply of NTN-Bs (National Treasury Notes – Series B) in the market, its public bonds linked to inflation (IPCA) with longer maturities. The measure is a direct response to the growing difficulty of selling these papers under favorable conditions, pressured by increasingly higher rates demanded by investors. Behind the scenes, the action is seen as a necessary maneuver to avoid the deterioration of the federal public debt cost.
According to a report by Folha de S. Paulo, this crisis surrounding inflation-linked bonds continues even after the repeal of a Provisional Measure that sought to increase taxes on competing investments. The central problem is the competition with infrastructure debentures, which are exempt from Income Tax and have become much more attractive for capital. This distortion forces the government to pay more to finance its operations, a scenario that tends to worsen with the investment cycle in private projects.
Fiscal Competition and the “White Cancellation”
The main source of pressure on the Treasury comes from the tax discrepancy.
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While the public bond investor pays an Income Tax rate that varies between 15% and 22.5%, those who invest in infrastructure debentures are exempt.
This advantage allows the issuing companies of these private bonds to raise funds by offering lower rates, something the government cannot replicate without incurring a higher financial cost, known as risk premium.
In light of this, the Treasury strategy was to drastically reduce the volume of bonds offered in auctions, in what the market dubbed “white cancellation”.
In practice, the action is equivalent to almost suspending sales. Lots that in September reached 150 thousand and 750 thousand bonds have been reduced to only 50 thousand in the most recent auctions.
This is a tactic to buy time for the market and avoid being forced to accept excessively high interest rates.
Strategy for 2026 and the Cost of Debt
Analysts point out that the Treasury‘s decision is also connected to long-term planning.
According to Luis Felipe Vital, chief strategist at Warren Rena, the agency is issuing more bonds than maturities (a 130% rollover) to reinforce the so-called “liquidity cushion” for 2026, a traditionally challenging election year.
The goal is to ensure resources to cover government expenses for over eight months without relying on new auctions in case of turbulence.
However, this liquidity need clashes with the cost generated by market distortions.
Paulo Valle, former Treasury secretary, explains that competition with incentivized debentures creates a subsidy paid by the government, which is forced to offer higher interest rates.
The maintenance of this tax benefit has been harshly criticized by former Central Bank President Armínio Fraga, who classified the measure as a “botched job” without economic or social justification, which directly interferes with the financing of public debt.
The Treasury‘s decision to reduce the supply of IPCA bonds is a defensive maneuver in a complex scenario.
On one side, it needs to prepare for the fiscal challenges of the coming years; on the other, it deals with competition that raises its costs.
The way this equation is solved will directly impact investors’ pockets and the health of public accounts.
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