Brazil’s Boom in Risky Bank Bonds Is Worrying Money Managers

A growing number of money managers are starting to warn about the risk of piling into a corner of the Brazilian bond market that has boomed as investors chase some of the highest yields in nearly two decades.

Sales of securities known as letras financeiras subordinadas — a type of subordinated debt that banks use to raise capital for regulatory purposes — have surged domestically as Brazilians plow into local fixed-income funds, making it cheaper for lenders to borrow locally than in international markets.

But with the key benchmark used to set the rates on the securities near 15%, the ...