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By Guillermo Parra-Bernal and Paul Kilby
SAO PAULO/NEW YORK, March 7 (Reuters) - The Brazilian government sold $1 billion in a reopening of existing 10-year debt on Tuesday at a record low yield, a sign of investor optimism on the policy outlook for Latin America's largest economy.
Brazil's National Treasury retapped the 6 percent, dollar-denominated bond due in April 2026 at a price of 107.213 cents on the dollar to yield 5 percent, below initial guidance in the "low 5 percent area." Investors placed $3 billion worth of bids for the reopening, three people familiar with the transaction said.
Demand for the notes came in stronger than initially expected as orders from pension funds and other institutional investors soared, allowing the Treasury to double the amount on offer, one of the people said. The bond was first sold in March 2016 at a yield of 6.125 percent.
Robust demand for the securities, coupled with investor optimism over President Michel Temer's plans to overhaul pension, labor and budget rules, allow policymakers to raise fresh cash ahead of an expected increase in interest rates in the United States.
Senior officials said Temer's policy agenda has helped offset worries linked to U.S. President Donald Trump's vow to curb trade. The cost of insuring against a Brazil bond default for five years fell 1 basis point to 216 basis points, according to IHS Markit Ltd prices.
"Brazil is really working on the fiscal deficit front, and social security reform is a priority for the government right now," said Klaus Spielkamp, head of fixed-income sales at Bulltick Securities LLC in Miami.
In addition, Temer's early success in advancing part of his economic agenda has paid off, and should help more local corporate borrowers fetch bond market financing more easily in coming days.
Brazilian companies have until around late April to offer debt in global markets using fourth-quarter financial data as reference for their bond prospectus.
According to one of the people, Marfrig Global Foods SA, Brazil's No. 2 meatpacker, is slated to price a senior unsecured bond as early as Wednesday. Pulp and paper producer Suzano Papel & Celulose SA could price a 30-year bond - the longest ever for a Brazilian non-investment grade issuer, on Thursday, the same person said.
"The timing of the sovereign retap was perfect to open a window of opportunity for some domestic corporate issuers," said the person, who asked for anonymity to speak freely about the Brazil bond reopening.
The Treasury tapped the investment-banking units of Bank of America Corp, Citigroup Inc and BNP Paribas SA to handle the transaction.
The April 2026 bond traded at 108.77 cents on the dollar to yield 4.796 percent ahead of the retapping. Tuesday's reopening was the first time that Brazil tapped global debt capital markets since a $1.5 billion sale of 30-year bonds in July.
The retapping took place in spite of news that Brazil's economy had shrunk at a faster-than-expected pace last year, a sign investors remain confident about Temer's ability to help pull the country of a recession not seen since 1901.
(Additional reporting by Patricia Duarte and Bruno Federowski in São Paulo; Editing by Cynthia Osterman and Diane Craft)