UPDATE 2-Brazil ups FX intervention, pledges to ease bond market strains

(Updates with Treasury action, adds details)

By Jamie McGeever

BRASILIA, March 12 (Reuters) – Brazilian authorities stepped up efforts on Thursday to ensure the country’s financial markets operate smoothly, stung by a surge in volatility this week that drove the currency to a historic low and led to bond sales being canceled.

The Treasury said it would hold a series of bond auctions and buybacks over the next week in conjunction with the central bank, while the bank intervened in the spot foreign exchange market for the third day in a row.

Treasury Secretary Mansueto Almeida met with central bank President Roberto Campos Neto on Thursday to discuss the markets, which lurched lower on another bout of risk aversion sparked by the deepening international coronavirus crisis.

Almeida told reporters after the hastily arranged meeting that the two institutions would stay in close contact, adding that Brazilian markets were a little “dysfunctional” on Thursday.

Treasury canceled a sale scheduled for Thursday of “LFT” securities linked to the benchmark Selic rate, a move that followed Monday’s decision with the central bank to cancel the sale of fixed rate “LTN” and “NTN-F” bonds, also slated for Thursday.

Treasury also said in a statement that it would hold bond auctions and buybacks on Thursday and Friday and next Monday to Wednesday, the terms of which will be announced on auction day.

“The purpose of this action is to provide support to the public debt market, ensuring the smooth functioning of this and other related markets,” Treasury said in a statement on its website.

“There was no liquidity in DIs (rate futures). They had to come in,” said one trader, referring to the surge of up to 100 basis points in longer-dated contracts out to 2027 and beyond.

Almeida told reporters the auctions might not even take place should conditions improve sufficiently but were a precautionary measure.

In foreign exchange, the central bank intervened in the spot market again on Thursday, offering at least $3.5 billion in four lots at auction. It sold a total $1.78 billion, it said on its website.

The auctions were held as the real fell below 5.00 per dollar for the first time ever, taking its losses against the greenback so far this year to a staggering 20% in another highly volatile day on local and international markets.

The central bank’s action helped lift the real to around 4.80 per dollar on Thursday from a record-low 5.0278 per dollar. Its sales of dollar reserves this week now stand at $7.25 billion. (Reporting by Jamie McGeever, Marcela Ayres and Luana Maria Benedito; Editing by Bernadette Baum and Peter Cooney)

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